Recent Buy – T.Rowe Price Group (TROW)

This month, I was back at it again and had some extra capital to deploy with a free trade credit staring my account in the face.  So of course I was going to use this as an opportunity to continue building my position in T.Rowe Price Group (TROW) that I started in 2016.    What’s funny is I wrote my last T.Rowe Price purchase article on 2/28/16, so almost a year ago exactly!   One year later, I was faced with similar facts and made a similar decision.   Time to see why I added to my stake!

A couple of Sundays ago, it all kind of came together.  I logged into my bank account and realized I had $1,302 save in my “Investment” savings account.  After my recent purchase of additional P&G shares, I felt more motivated than ever to use the cash to build on a position that I already owned.   I’ve taken a liking to owning large positions in companies because of the resulting DRIP and the impact that each dividend increase for the company has on your forward income.   Obviously I can buy a new position and realize the same impact, but I’m sticking to the philosophy of buying in a stock in at least $3,000 increments that I began to follow last year after Lanny brought the topic up in an article.   So without having $3,000 and having an itch to buy, I decided to spend my Sunday running my current holdings through our stock screener and finding a stock that checked all the boxes for me.

On this day, that stock was T.Rowe Price group and I almost jumped out of me seat with excitement when I realized how perfect the timing of this purchase was going to be.  In total, I purchased 18.7424 shares of T.rowe Price, adding $40.48 in forward dividend income to my portfolio at the time of the purchase (more to come later on!).  Now, I own 67.1840 shares of T.Rowe, which produces $145.17 in dividend income annually.  Each year, I should receive slightly over 2 new shares of T.Rowe via DRIP at the company’s current stock price.   Here are are some of the reasons why I purchased T.Rowe:

  • With a purchase price of $69.42, the company was trading at a P/E multiple of ~14.9x (depending on the source) and had a forward P/E multiple of 14.4x using the average earnings estimates per Yahoo Finance.  This is well below the current market P/E ratio, which is one of the main criteria in our stock screener.
  • The dividend at the time of the purchase was $.54/share.  Using the same estimated earnings sources, the current dividend payout ratio was approximately 50%, give or take a handful of percentage points depending on the source.   Boom, another check in the box.
  • Our third metric in our stock screener requires the company to have a history of increasing their dividend.   Well, T.Rowe Price is a Dividend Aristocrat.  Enough said there, right?  Checking the third and final box on our stock screener.   There will be more to come about this point a little later on.

  • The company does not have any debt, which I really like.   We’ve all been a victim of dividend cuts from leveraged dividend companies in the past. While no-debt is not a requirement and there are plenty of times where a company (much like a person) can have levels of low debt. It is always nice to see a debt to equity ratio that is “n/a.”  Gives me comfort knowing that the company can weather a future storm that may hit and will not be faced with having to choose between shareholders or debt holders.  We know who usually wins that battle.
  • After reading the recent earnings release, I felt comfortable about the company’s long term prospects and managements desire to continue returning value to shareholders in the form of dividends and share buybacks.  Heck, management stated in their earnings release that they bought back 4% of their shares in 2016.

After performing my research, I was sold on the purchase.  As usual, once I identify a company I would like to buy, I check their dividend payment schedule on dividendinvestor.com and I realized this purchase was meant to be.    Not only was the company set to announce their earnings this week, but this was also the quarter they were supposed to increase their dividend.   So I was able to buy the stock before their dividend announcement and hopefully capture the bump of their exciting dividend news.  There is a risk of course, but I was confident that they were going to announce a decent dividend increase.  On Thursday 2/19, they validated this guy feeling and announced a $.03/share increase in their quarterly dividend, or a 5.6% increase.  Not too shabby in this current environment!  This dividend increase added $8.07 to my forward income.

All in all, I couldn’t be happier with this purchase.  In one week, I was able to add $40.48 in dividend income just by increasing my stake in a company and then on top of it, I received another $8.07 via dividend increase.   To me, this was a no brainer investment decision.   Investing in an undervalued Dividend Aristocrat is an easy enough decision for me to make and the dividend increase was just the icing on the cake!   I think I was able to take a page out of Lanny’s automatic investing strategy book as well, which is always nice too!

What are your thoughts on my purchase?  Have any of you purchased T.Rowe Price recently?  Were you as excited about the dividend increase as I was?  If you were looking elsewhere, what other companies did you buy instead or which companies are on your watch list?

-Bert

 

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16 thoughts on “Recent Buy – T.Rowe Price Group (TROW)

    • DM,

      Boom, looks like we are both in the same boat here. How excited were you for that dividend increase? I cannot wait to get this first dividend at the end of March and see the dividend income continue to climb forward!

      Bert

  1. I like the purchase and it is something I have been monitoring but what has held me back and led to me investing in other companies is the shift in asset management. The world is getting lazier so passive investments are becoming far more normal than active management, especially with the performance of passive management compared to the average joe. Of course TROW is not average which is why I own one of their funds in my 401k. What are your thoughts on this moving forward? I believe this is why the price is suppressed and if it stays this way I will likely buy at some point!

    • Stefan,

      I agree to a degree the world is getting lazier – but companies have also done a better job of expanding investment options for people and getting companies like TROW in front of employees that may not have invested in the past. We are all in our bubble because we love stocks, love research, and love finding deals out there. But the majority of the people that know they are not the best investment managers find your Vanguards, T.Rowe’s and others a great option to get involved with the investing game without requiring the same level of knowledge. To answer your question, I love T.Rowe in the long run for the reasons the two of us have described. Assets leaving the company and other elements will come and go with the changing market environment, new political atmosphere, etc. Like you, if the price remains depressed…I’ll keep on buying!

      Bert

  2. I really like the asset managers because they’re effectively toll road companies. They just take a little bit off the top and go along their way. I haven’t invested additional capital into TROW in a while, I did turn the DRIP on last year though, primarily because I didn’t have the cash available. I do share Stefan’s concerns regarding the asset management business and AUM is a key thing to watch for with TROW. Looks like a solid buy.

    • haha Toll road companies. I like it. I would like to add that more and more people are gaining access to the toll roads as well, as companies promote using asset managers for retirement plans and more people have capital to add to these plans. I’m not as worried about AUM and think in the long term, it’ll trend upward. Especially once the political dust gets settled and the laws that will impact the business environment will get ironed out in the future.

      Thanks for the kind words.

      Bert

  3. Nice TROW pick up. It’s still a very small position in my portfolio but I almost picked some up not long ago after it dropped quite a bit in late Jan. It was on my monthly ‘considerations’ pick but I went with other names instead. You know the drill…. Every dollar counts!!!

    • Thanks Divhut! hahah exactly. Its not that you didn’t want to pick them up, there were just some other great deals out there for you to buy. In a perfect world, you could have scooped them all up. But then again, if this were a perfect world where we all had infinite dollars, I’m sure our blogs would have a different tone haha

      Bert

  4. I also just purchased TROW last week. I wish I would have bought in at that lower entry mark but I didn’t have the capital yet. What also makes it an easier buy for you was that you had a free trade which really doesn’t have any affect on fee perspective. You definitely did the right movemail. You should never let an opportunity pass you by simply because you didn’t have $3k to invest. I personally like to wait till 1k but I have added to positions before with smaller incriments. Good purchase!

    • YES! Welcome aboard. You know what, in 5 years, will you remember the entry point? I sure as heck don’t for the companies I have owned for a while. Good advice too Diligent. I would have liked to wait a little longer for a larger buy, but this was too good of an opportunity to pass up. So I went for it. Agree completely. Thanks for the comment!

      Bert

  5. Interesting comparison between Franklin Resources (BEN) and T. Rowe Price. During the past five years, BEN is – 15% while TROW is + 50%. BEN used to be a hidden gem but I don’t know what’s happened to management. Also had no debt at least before their purchase of Templeton Funds. Maybe a good value buy here.

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