T. Rowe: The “Price” Is Right

10/01/2014 8:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

With lessons learned during the Great Depression, Thomas Rowe Price, Jr.  founded an investment firm focused on well-managed companies whose earnings and dividends were expected to grow faster than inflation and the overall economy, explains Ingrid Hendershot, money manager and editor of Hendershot Investments.

Proprietary fundamental research has enabled T. Rowe Price Group (TROW) to build one of the largest and most comprehensive buy-side research organizations in the industry.

It is now one of the nation's premier investment houses and has posted a profit every year since it went public in 1986.

Free cash flow has nearly tripled over the last five years to $1.1 billion. T. Rowe Price maintains a pristine balance sheet with no long-term debt and ample liquidity. Management returns about 40% of earnings to shareholders in the form of steadily growing dividends.

T. Rowe Price's operations are profitable with high profit margins translating into high returns on shareholders' equity which averaged more than 20% over the last five years. This is notable not only in light of the company's conservative financial position, but also because it covers the 2008-2009 downturn in the financial markets.

Over the last five years, T. Rowe Price has generated high double-digit growth with sales and earnings compounding at annual 17% and 25% rates, respectively.

Long-term investors should consider investing in T. Rowe Price, a high-quality company with a strong brand, pristine balance sheet, double-digit growth, and 28 years of rising dividends and highly profitable operations. Buy.

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