Friday, May 4, 2012

T. Rowe Price Group, Inc. Stock Analysis

T. Rowe Price Group, Inc. (TROW) is a publicly owned asset management holding company. The firm primarily provides its services to individual and institutional investors, retirement plans, and financial intermediaries. This dividend champion has paid uninterrupted dividends on its common stock since 1986 and increased payments to common shareholders every for 25consecutive years.

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.

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 22.20 times earnings, has a sustainable dividend payout and yields 2.10%. I would consider initiating position in the stock on dips below $55.

Full Disclosure: Long EV
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