A Quietly Building Financial Leader

12/31/2012 10:00 am EST


Patrick McKeough

Editor, Successful Investor

This mutual fund company has kept its head down, didn't get wrapped up in the real estate debacle, and continues to do well for its clients and investors, notes Pat McKeough of TSI Network.

A good way to diversify your financial sector holdings is to look beyond the banks to firms that are leaders in their niche markets. Stocks with well-established brands should be able to keep fueling their growth, which in turn will give them more cash for dividends.

One well-known brand is a stock we cover in our advisory on US investments, Wall Street Stock Forecaster. T. Rowe Price (TROW) sells mutual funds and wealth management services. On September 30, the company had a record $574.4 billion of assets under management, up 17.3% from $489.5 billion at the end of 2011.

The company continues to see strong demand for its "Retirement Funds," which invest in other Price Group mutual funds and automatically adjust the buyer's portfolio balance according to their age. Retirement Funds accounted for 47% of the company's fund sales in the latest quarter.

T. Rowe Price's fee income varies with the value of the assets it manages, so it is also benefiting from rising stock markets. That helped push up its revenue by 13.3% in the third quarter of 2012, to $769.7 million from $679.4 million a year earlier. Earnings rose 33.1%, to $245.7 million, or 94 cents a share, from $184.6 million, or 71 cents.

The company will pay a special dividend of $1 a share on December 28. Even after this payment, T. Rowe Price will hold cash and investments of about $2 billion, or $7.85 a share. It also has no long-term debt. Its regular quarterly dividend of 34 cents a share yields 2.1% on an annualized basis.

The stock is up 22% in the past year; it now trades at 19.6 times the company's forecast 2012 earnings of $3.37 a share.

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