Investors focusing on a dividend growth investing strategy have performed better than some broader market indices, notes Prakash Kolli; here, the editor of Dividend Power continues a 3-part special report highlighting his favorite undervalued growth stocks.
T. Rowe Price (TROW) was founded in 1937. Today, it is one of the largest active asset managers in the US. It is also one of the few large publicly traded asset managers. The firm is known for its 401(k) and individual retirement account (IRA) plans. Besides retirement plans, T. Rowe Price offers mutual funds to retail investors, institutional accounts, and sub-advisor services.
Total revenue was about $7,708 million in the past twelve months. As an asset manager, the firm charges a fee for assets under management (AUM). If the AUM is higher due to market action and fund inflow, then T. Rowe Price’s revenue is greater and vice-versa.
At the end of Q1 2022, the company had about $1.55 trillion in AUM. However, T. Rowe Price’s revenue and earnings are sensitive to the stock market.
The firm grows by adding more assets and expanding its distribution. Notably, the company’s funds tend to perform well over the long term, attracting investors and money. In the past 10-years, 85% of the equity funds outperformed the Morningstar median, 67% exceeded the passive peer median, and 72% beat their benchmark. In addition, T. Rowe Price does well for fixed-income and multi-asset funds.
T. Rowe Price is a Dividend Aristocrat with a 36-year streak of dividend increases. The relatively low payout ratio of 33.9% means more future dividend growth. The company often increases the dividend by double-digits, and the trailing 10-year growth rate is ~13.3%, and the 5-year growth rate is ~14.9%.
The stock price is down about 34.0% YTD to $128.59, near the 52-week low and well-off the 52-week and all-time high of $224.56. Simultaneously, the valuation has fallen to about 12.3X, below the range in the past 5-years and 10-years. T. Rowe Price is an undervalued market leader with a nearly 4% dividend yield. (Disclosure: Parkask Kolli is long shares of TROW).
