T. Rowe Price (TROW) Stock Analysis

Ah.. Mid-February.  The markets have been on another Cedar fair’s rollercoaster ride and we’ve been buckled in feeling the stomach drop… while going through winters that are warm with no a sign of snow to the normal brutal Cleveland winter of a “snowmagheddon” for a great way to put it.  With the market “swoons” we all sign into our brokerage accounts to see what our balance is, what dividends have been received and what new stocks have popped on our watch list.  Then it hit me – what about doing a brokerage service stock analysis?  We are due to write one and this one felt… right.  To the analysis my friends.

t rowe

Intro to T. Rowe Price

Remember my journey article from almost two years ago?  Well… my investing career all began with T. Rowe Price (TROW).  I didn’t know any better as a young 20 year in the investing community and at age 20 in 2009, I stumbled across their website and opened my first account with them to fund my first transaction.  Now.. there are many other players in the atmosphere of brokerage and investment advisory firms – we have T. Rowe, Blackrock (BLK), Prudential Investments (PRU), Vanguard, Bank of New York Mellon (BK), to name a few.  Here is a brief background from Google finance on T. Rowe:

“T. Rowe Price Group, Inc. is a financial services holding company. The Company provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds distributed in the United States and other investment portfolios. Its assets under management are accumulated from a client base across four primary distribution channels: third-party financial intermediaries that distribute its managed investment portfolios in the United States and other countries; individual United States investors on a direct basis; the United States defined contribution retirement plans, and institutional investors globally. The assets that it manages include a range of the United States and international stock, blended asset, bond and money market mutual funds, and other investment portfolios. It offers advisory services and a distribution management service. It provides administrative services as ancillary services to its investment advisory clients.”

Sums it up fairly well.  They also have over $750 billion in assets under their management, which is hilarious standing next to Blackrock’s $4.5 trillion in assets under management.  For those of you who are new to the investment advisory service – assets under management or AUM means this, ” refers to the total market value of investments managed by a mutual fund, money management firm, hedge fund, portfolio manager, or other financial services company.”  Then, you have Bank of New York Mellon (BK) standing strong at $1.7 Trillion of assets under management.  As you know how we like to perform our stock analyses – I will compare these 3 jointly, with ultimate focus on T. Rowe Price (TROW).  I would love to see if it fits the bill and let’s me fulfill my top 5 reasons to make a large investment into a company.  As I’ve been very sidelined the last few weeks waiting for an opportunity since my Archer Daniels (ADM) purchase back in January.   We will put these 3 large investment firms through the wonderful Dividend Diplomat Stock Screener and show the results, breaking it down below.

T. Rowe Price (TROW) Analysis

trowe analysis

1.) Dividend Yield – okay, T. Rowe (TROW) and Blackrock (BLK) are both over the S&P, with TROW leading the pack here at 3.08%, 9bps higher than BLK.  Overall, solid yield here and you are definitely in a good zone.  They are not above my overall portfolio average yield, however.  I love the yield on them all, but BK is playing some catch up, and placing them in a zone of low yield, high dividend growth rates, that’s for sure.

2.) Payout Ratio – Very solid – I like TROW’s balance at 46.85% – showing they care about their shareholders, but want to retain approximately half.  BLK shows very similar signs and cannot complain there either.  BK, as stated above, has ample room to pump and increase that yield, no doubt.  All check out here in that nice range and under 60%.

3.) Dividend Growth Rate – BOOM!!!  Going uphill on that rollercoaster.  I love the impact the dividend growth rate has on a portfolio and it’s very rich here.  All have above double digit growth and show impressive standings here.  Cannot complain one bit.  Also – you see the highlight there – that is EXCLUDING a dividend.  If you know T. Rowe Price (TROW) or are a fellow shareholder – annually, recently, they’ve been giving back a special dividend not even including in the growth rate or even yield calculations above.  Last year they paid a special $2.00 dividend.  Would have been nice right?  Congrats to all you shareholders for receiving that one.  Oh and I never mentioned – T. Rowe is a Dividend Aristocrat.  Boom.  (25+ years of growth we’re talking here!!!)

4.) 5 Year Average Dividend Yield – fairly spot on here, with BlackRock showing a few signs you can catch more yield than you have in the past. T. Rowe is pretty on point in this situation.  I like this metric as a sign that you may be getting more yield for your buck than you have been accustomed to.

5.) Price to Earnings (P/E) Ratio – This is a curveball here – Bank of New York Mellon (BK) takes the current piece of the pie here showing the most undervaluation based on forward 2016 EPS targets with T. Rowe and BlackRock coming in neck and neck.  All fairly solid, showing signs of undervaluation, as well as below the S&P 500 P/E overall.  Not too shabby.

Overall, T. Rowe (TROW) definitely passes most all metrics in terms of yield, growth rate, aristocrat status, P/E ratio and payout ratio.  The one thing I’d like to see is that yield slightly be higher, i.e. the price slightly lower – say under the $65 range – whereat $65.00 this produces a 3.20% yield, giving you more bang for your buck, as well as a yield over the 5 year average.  But damn, this is an aristocrat and I know Bert or myself do not have an investment advisory firm specifically in our portfolio… hmm… definitely HIGH on the watch list in my books.

Conclusion on T. Rowe Price (TROW)

Overall – love the company.  Think they have enough assets under management to weather any storm here.  One thing I forgot to mention – they have no debt on their balance sheet – love the low debt to equity ratio companies, eh AND they were positive and continues to grow dividends during the financial crisis, unlike big time banks and investment advisory firms – another HUGE plus, showing they do things right and don’t want to stretch themselves into higher risk territory in order to inflate/reach for earnings.  I like the stock, that’s for damn sure, but would love them $2+ cheaper if I could before they go ex-dividend, in order to capture all 4 dividends this year.  I’ll have my magnifying glass on them, without a doubt.

How do you feel about T. Rowe?  Would you consider them on your watch list as you head into the end of the leap month?  Do you use them or prefer another firm that also has solid investing metrics as displayed above?  Any other suggestions, ideas or thoughts?  Thanks everyone and hope you are all staying warm and safe!

-Lanny

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23 thoughts on “T. Rowe Price (TROW) Stock Analysis

  1. Just an aside, since you are more interested in income than capital appreciation have you considered P2P lending sites like LendingClub.com. It’s worth taking a look.

    • Pollie,

      Thank you very much for coming by. Are you thinking of buying? Making any moves? Busy season is killing me over here! I miss not being able to get into all of the blogs as I usually do every night.

      Thanks again Pollie! Nice increase they announced and the price came down a few bucks as well.. hmm..

      -Lanny

  2. I noticed this company a year earlier when I added it to my portfolio, but after some time I had to sell it. When I checked it now on my analysis tool, it looks it’s still good for purchase, so I agree that T. Rowe Price should be considered for purchase now.
    What I like in this stock now is low price to free cash flow ratio, reasonable dividend yield, high dividend growth and better results for TTM compared to 5 year average on FCF, Free Cash Payout, Cash return ratios.

    • Luca,

      Thanks for coming by. Do you like them? They just announced a 4% increase and am wondering if a special dividend is coming this year.

      Hope you have had a great start to the new year Luca, always appreciated!

      -Lanny

  3. Can’t dispute that they’re a quality operation, but my preference was to own the other two. BLK (via iShares) has roughly 30% of the ETF market in addition to managing mutual funds. BK is a leader (along with JPM) in sponsored ADRs. BK also owns Pershing, LLC which provides a trading platform to small brokers (Motif, for one).

    My only concern with TROW is their reliance on mutual funds (higher fees) and distribution platform, though they’ve thrived for years using this model. Personally, I prefer the greater diversity presented by either BLK or BK.

    • Charlie,

      You have some good points.. Pershing is big and a lot of small players use them, hence indirectly supporting BK. BLK has the iShares which owns a HUGE part of the market. T. Rowe Price, to me, isn’t overly as enthused with chasing returns and just doing, well, what’s right in a way? Does that make sense?

      Personally, haven’t made a move, but they did announce a small 4% increase to their dividend, yielding around that 3.15% mark. I’d like them at 3.2 to 3.25%, not much of a difference, but helps in overall valuation.

      Appreciate the thoughts – do you own any of the 3?

      -Lanny

  4. Thanks for the analysis. It’s a great company. It has been in my portfolio since June 2015. Hope to own it for many more years to come.

    Best wishes, DfS

    • DfS,

      Thanks for coming by – have you made any more moves on them with the downturn? They’re down quite a bit from 2015 and was curious if you’ve been averaging down on your position this year? Congrats on their 4% increase! What are your main reasons for liking them?

      -Lanny

  5. Lanny,
    I like TROW a lot, and breeds similar to them. As much as I like to think more people are doing DGI, I think that would simply be looking to hard at this small online community as a large echo chamber. Most people through funds or 401ks let others do the work for them, and they subtract a small fee. I think the numbers they work with will only continue to grow along with their margins. There will be some bumps as the ‘boomers’ retire, but it will be just that a bump.
    Nice article,
    Gremlin (Long AMP)

    • Gremlin,

      Thank you. Long Ameriprise eh? Any specific reasons? What stands out the most from them to you?

      I like T. Rowe, without a doubt and they are an aristocrat. Do I secretly buy them and then also fulfill the funny little fact they were my first brokerage and I still have my first investment held there?

      Thanks for the post DG, as always!

      -Lanny

      • Lanny,
        I like AMP because of their ratios. They have a ton of for growth of the dividend and a decent starting yield. I also liked them because due to their ratios they appear relatively cheap.
        TROW is a good purchase along the same lines, in fact I think a person owning both would be doing themselves a favor.
        – Gremlin

  6. I bought some shares before the last special div, so my holding has been in the red for a while now. I’ve been concerned enough about the ETF issue to consider diversifying with BLK, but not enough to sell, still think TROW is a breat company. BLK’s last div raise was lower than it had been of late, so I was considering doubling down on TROW since it had declined significantly from my last purchase. But now TROW’s just announced div raise is particularly anemic, so probably going to wait on both. Oh well, at least its not another cut!

    • Sokhar,

      Thank you for the post. No cuts here. More money always going in and the studies I read, I have found that employers are almost automatically making contributions happen to a service provider to not be on the “hook” at all for anyone’s retirement goals (i.e. employees blaming the employer for not being as transparent on what they can do…). I don’t think these players are going anywhere and maybe at some point after the consolidation of banks happen, the consolidation of these entities may occur. But who knows! Congrats on the increase though.

      -Lanny

  7. Don’t forget about BEN and EV as fellow dividend aristocrats in this space. Both have longer dividend increase streaks than TROW…not that past results are any indication of future success…

    Right now, money is flowing out of mutual funds and into ETFs. Passive “indexing” is quite the rage these days. Whether this is a temporary pattern or a fundamental sea-change on Wall St. is a debatable matter of opinion. But if you are a stodgy old financial firm who charges really high fees for your “actively” managed mutual funds that barely match (much less beat) their benchmarks, you might do well to at least be worried.

    In the long run, they’ll probably all do just fine, but I think it’s worth looking beyond the quantitative analysis to find some kind of differentiating element in whichever one you pick. Personally I’m long EV because their “exchange traded managed funds” sounds like it could be really profitable old snake oil in new bottles.

    • CFW,

      Thank you for coming by! I definitely won’t forget about the other aristocrats in the space. BEN has quite a bit of a lower yield as well.

      ETFs are definitely better than mutual funds, no doubt about it. I think you will start to see economies of scale within the mutual fund industry as well.

      My old fund from T. Rowe actually doesn’t have big fees. In fact, I have found that Vanguard actually charges a quarterly fee. T. Rowe charges me no administrative costs at all.. but whoa – EV has exchange traded managed funds… interesting aka funds that trade during the day that are also managed and don’t simply correlate with another fund… interesting Have you personally invested with any of them?

      -Lanny

    • Tristan,

      Thanks again as always. Can’t wait to catch up – these are the dog days of busy season and I can’t seem to find the free time. It’ll be over soon and I’ll be more frequent visiting everyone’s blog posts for sure.

      But yes – They are a great company, long, long history and are an aristocrat and offer “cherries” on top as well with their special dividend. Tough not to like, right? Do you own?

      -Lanny

  8. I saw this organization a year prior when I added it to my portfolio, yet after some time I needed to offer it. When I checked it now on my examination instrument, it searches it’s still useful for procurement, so I concur that T. Rowe Price ought to be considered for buy now. What I like in this stock now is low cost to free income proportion, sensible profit yield, high profit development and better results for TTM contrasted with 5 year normal on FCF, Free Cash Payout, Cash return proportions.

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