T. Rowe Price Group Inc.: Why TROW Stock Is A Solid Dividend Play
Strangely enough, the best deal at T. Rowe Price Group Inc. (NASDAQ:TROW) might be the company’s stock rather than its mutual funds. Investors in TROW stock received a 3.15% dividend yield on September 13, 2016.
The TROW stock dividend yield actually increased over the past year, rising from 2.82% on September 15, 2015 to 3.15% a year. The 3.15% yield reported on September 13, 2016, is actually the highest rate reported in at least five years. (Source: “T. Rowe Price Group Dividend Yield (TTM),” YCharts, last accessed September 13, 2016.)
That TROW stock dividend is also very reliable. In fact, the last time T. Rowe Price stock missed a dividend payment was in March 2008, during the middle of a major economic crisis. Since then, T. Rowe Price stock has paid a dividend for every quarter of every year.
That dividend has been growing in recent years, rising from $0.44 in 2014 to a projected $0.54 for September 29, 2016. TROW stock’s dividend can also jump very suddenly, having increased by $0.12, going from $0.44 to $0.52 between December 2014 and March 2015.
To add icing to the cake, T. Rowe Price stock likes to reward investors with at an extra-large dividend every couple of years. The last one was in April 2015, when TROW stock shareholders received a $2.00-per-share dividend. Before that, the big one was paid in April 2013, when investors received $1.00 per share. (Source: “T. Rowe Price Group, Inc. Dividend Date & History,” NASDAQ web site, last accessed September 13, 2016.)
Is TROW Stock A Value Income Investment?
All of this makes T. Rowe Price a great dividend stock, but it is also a really good company and something of a value investment.
The mutual fund service provider is a value investment because it makes a lot of money. T. Rowe Price stock achieved a profit margin of 18.69% as of June 30, 2016. That margin was actually down from March, when it reached 29.7%. (Source: “T. Rowe Price Group Profit Margin (Quarterly),” YCharts, last accessed September 13, 2016.)
That profit margin gave the company a net income of $1.0171 billion on revenues of $4.14 billion for the second quarter of 2016. More importantly, T. Rowe Price stock is able to hold on to that profit and generate a lot of float. The company reported having $1.275 billion in the bank on June 30, 2016. (Source: “T. Rowe Price Group Key Stats,” YCharts, last accessed September 13, 2016.)
All of that paid off for T. Rowe Price stock shareholders, who received a return on equity of 22.28% in addition to the dividend yield. These figures indicate that TROW is both a growth stock and an income stock.
TROW Stock Has Growth Potential
The charts indicate that T. Rowe Price is a fast-growing company. Between June 2012 and June 2016, its revenues grew by $1.323 billion. The company also reported revenues of $2.817 billion in June 2012 that grew to $4.414 billion four years later. (Source: “T. Rowe Price Group Revenue (TTM),” YCharts, last accessed September 14, 2016.)
Demographics indicate that T. Rowe Price stock might be in for greater growth because demand for its products, mutual funds that provide retirement income, is exploding. Around 20% of the population of the United States, or 76 million people, will be age 65 or older by the year 2029. Those people will control $54.0 trillion in assets by 2030 and they will need some place to put that money. (Source: “Baby boomers’ retirement: The country’s biggest and most predictable train wreck?” Miami Herald, June 25, 2016.)
Not only will there be more customers for T. Rowe Price, but many of those customers will have a lot of money to place in those mutual funds. That will mean more income from both mutual fund fees and sales.
Adding to the demand for mutual funds are numerous news stories that predict Social Security will run out of money as early as 2034. Such fears will only increase the demand for alternatives to Social Security, such as mutual funds. (Source: “Social Security trust fund projected to run dry by 2034,” CNN, June 22, 2016.)
The Bottom Line For TROW Stock
T. Rowe Price Group Inc. is a cash-rich company with a history of paying a good dividend and that has a lot of potential for growth.