T. Rowe Price: Dividends, Value & Trust

05/18/2017 2:50 am EST

Focus: FINANCIALS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

The numbers matter, of course. They always do. But reputation matter, as well. With financial stocks, you can argue persuasively that reputation matters more than the number, observes Ian Wyatt, editor of High Yield Wealth.

Few financial companies are more deserving of their customers’ and investors’ trust than T. Rowe Price (TROW), the large Baltimore-based mutual-fund company founded in 1937. 

T. Rowe Price has earned the trust of income investors. It has paid a dividend every year since it went public in 1986. The dividend has been increased every one of those years.  

No-load mutual funds are T. Rowe Price's principal product offering. The company offers 127 of these funds, which cover an array of investment styles, instruments, and sectors. T. Rowe Price has certainly earned a lot of customers’ trust. Assets under management (AUM) exceeds $861 billion.

Eighty-four percent of T. Rowe Price’s mutual funds have outperformed their Lipper averages (a benchmark) on total return over three years, 80% over the past five years, and 86% over the past 10 years.

EPS has grown at a respectable 7.9% average annual rate since 2007. The dividend — currently yielding 3.2% — has grown at an even more respectable rate, 12.5% annually.

The balance sheet is as conservative as it gets for a financial company. T. Rowe Price currently carries $1.6 billion in cash and cash equivalents on its balance sheet, about $6.40 of cash per share, and no long-term debt. 

Why are investors losing interest in a blue-chip financial institution? Competition and near-term performance — and the trend toward passive investing such as ETFs — is the immediate answer.

But we think T. Rowe Price management is up to the challenge passive investing imposes. The company continues to evolve to justify its fee structure to earn customer trust.   

Target-dated retirement funds have attracted a lot of investors’ money in recent years.  The fund has also hitched a wagon to the new robo-advisory trend. It added a new service called the T. Rowe Price Active Plus Portfolio.

With only 6% of assets derived from customers domiciled outside of the United States, international growth is key to T. Rowe Price generating organic growth.

We see nothing but value at T. Rowe Price’s current share price. We’re looking at an investment that could easily generate a 15%-to-20% total return over the next 12 months.  

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