The company’s last dividend increase was in February 2012 when the Board of Directors approved a 9.70% increase to 34 cents/share. T. Rowe Price ‘s largest competitors include Blackrock (BLK), Franklin Resources (BEN) and Eaton Vance (EV).
Over the past decade this dividend growth stock has delivered an annualized total return of 14.70% to its shareholders.
The company has managed to deliver 16.10% in annual EPS growth since 2002. Analysts expect T. Rowe Price to earn $3.19 per share in 2012 and $3.64 per share in 2013. In comparison T. Rowe Price earned $2.92/share in 2011.
In a previous article I mentioned that I am bullish on asset management stocks, which are riding the long-term trends in retirement planning, which many Baby Boomers increasingly need. Long term growth in earnings is dependent on several factors including attracting new assets under management, maintaining management fees on assets under management and the overall performance of financial markets. When the stock market increases in value, assets under management generally tend to increase as well. This brings in more revenues to companies like T.Rowe Price. Mutual Funds that also perform at least as well as the average, would likely keep investors holding on to their fund shares. The costs of running a mutual fund do not increase proportionately with the amount of money under management. As a result higher amounts of assets under management provides the investment adviser with a sufficient scale that would allow them to charge lower management fees than peers, which could potentially entice investors to switch over, without hurting profitability.
T.Rowe Price is strategically positioned to make money from the wave of Baby Boomers that will be retiring between 2008 and 2024. Given the widespread appeal of such plans as the 401 (K) or IRA’s, I expect a larger portion of the population in the US to keep saving for retirement. As a result, companies like T.Rowe Price could only benefit from that trend as well. Two thirds of the company’s assets under management are in retirement accounts, which generally tend to have a lower turnover rate. A potential growth market includes Target-Date Retirement funds, which investors are finding increasingly easy to invest in. Another source for future growth could include international expansion of the company.
The company has managed to maintain a high return on equity in the high teens to low twenties. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 15.80% per year over the past decade, which is higher than to the growth in EPS.
An 15.80% growth in distributions translates into the dividend payment doubling almost every four and a half years. If we look at historical data, going as far back as 1990 we see that T. Rowe Price has managed to double its dividend every four and a half years on average.
The dividend payout ratio has remained below 45% , with the exception of 2008 - 2009. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently T. Rowe Price is overvalued at 20.49 times earnings, has a sustainable dividend payout and yields 2.20%. I would consider initiating position in the stock on dips below $55.
Full Disclosure: Long EV