T. Rowe Price Group

There's a lot of things I like about T. Rowe Price. It's a member of the Dividend Aristocrats and it's been increasing it's dividend annually for the past 26 years.  It has growing revenues, earnings and dividends and a low payout ratio. This is the kind of company, if bought at the right price, will make its owner a very wealthy individual over time.

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• Meets the financial needs of investors and an aging population wanting to retire 
• Revenues and Earnings are growing at over 13% and 15%, respectfully
  
• Dividends are growing at over 11%
  
• Total one year gain for owning this stock is estimated to be over 13%
  

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The Company

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. Through its subsidiaries, it manages separate client-focused equity, fixed income, and balanced portfolios. The firm also launches equity, fixed income, and balanced mutual funds for its clients. It invests in the public equity, fixed income, markets across the globe. It also invests in late-stage venture capital transactions with equity investments between $3 million and $5 million. The firm was previously known as T. Rowe Price Associates, Inc. T. Rowe Price Group was founded in 1937 and is based in Baltimore, Maryland with additional offices across North America, Europe, and Asia. (Daily Chart) (Weekly Chart)

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The Fundamentals

At first glance the fundamentals look a little sporadic (see below). The revenues were increasing until they fell in 2008 and then again in 2009. Unfortunately those two years saw the biggest economic depression this country has seen since the Great Depression of 1929 and virtually every company was affected. During this period most people weren't investing their savings or income with companies like TROW because they were more worried about losing their homes to foreclosure. In addition, the business of TROW is investing in many of those same companies that were experiencing the most financial pain during this period. The result is that TROW was under a lot of financial pressure to perform in a very unforgiving environment. Needless to say, I wouldn't have been surprised if their revenues had been even more depressed than they experienced during those years.

Similarly earnings followed revenues deterioration during this period. Earnings rose through 2007 and then fell in 2008 and 2009. Then, like revenues, they began to accelerate once again in 2010 and have continued to increase through 2013. Estimates for 2014 show an increase in revenues of 13.79% and an increase in earnings of 14.61% and for 2015 show an increase in revenues of 9.59% and an increase in earnings of 11.40%, which is a nice continuation of the company's increasing trends. 

Dividends, however, have continued to increase annually throughout the entire period of 2003 to 2013 with one exception in 2012. During that year TROW started out paying a dividend of $0.34 per quarter which would normally produce an annual dividend of $1.36. This is well within the expected increased range of dividend payments for that year. Instead TROW paid a $1.00 special dividend in the 4Q2012 enhancing the dividend payment for that one year. 

At the time of the special dividend James A.C. Kennedy, the company's chief executive officer and president, commented: "This special cash dividend is an efficient return of capital to our stockholders. After the special dividend payment, the company's balance sheet will remain strong, with cash and mutual fund investment holdings of nearly $2 billion, and no corporate debt. Further, we believe that the payment of the special cash dividend should not impact the company's ability to continue our outstanding dividend record for the foreseeable future."

TROW is now back on track and estimates are for dividends to increase to $1.78 (+17.10%) in 2014 and $1.99 (+11.79%) in 2015. Those estimated dividends are in keeping with a payout ratio of approximately 40%. 

Year
2015 Est
2014 Est
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003

Revenues
$4.34 Bil
$3.96 Bil
$3.48 Bil
$3.02 Bil
$2.92 Bil
$2.36 Bil
$1.86 Bil
$2.11 Bil
$2.23 Bil
$1.81 Bil
$1.51 Bil
$1.28 Bil
$0.99 Bil

Earnings
$4.98
$4.47
$3.90
$3.36
$2.92
$2.53
$1.65
$1.82
$2.40
$1.90
$1.57
$1.25
$0.88

Dividends 
$1.99
$1.78
$1.52
$2.02
$1.24
$1.08
$1.00
$0.96
$.075
$0.59
$0.48
$0.40
$0.35

Payout Ratio
39.95%
39.82%
38.97%
60.11%
42.46%
42.68%
60.60%
52.74%
31.25%
31.05%
30.57%
32.00%
39.77%

Below are a few other company fundamentals I like to review when I research any company. Everything here looks good but not perfect (no company ever is perfect!). I generally like to see a P/E ratio below 20 and a dividend above 2.5% but a company whose earnings are currently growing at 15%, a dividend that's growing at a rate above 11% and a payout ratio less than 40% more than makes up for it's other shortcomings. In addition, an expected total one year return on my investment of 13.32% is an excellent return. Even if the "experts" are off by 20% I'll still expect to receive more than a 10% gain. Information like that might just be the kind of information that convinces me to begin accumulating shares in this company for the long haul.

Beta = 1.33
P/E Ratio = 20.67    PEG = 1.43
Current Dividend = $1.76
Current Yield = 2.18%   ($1.76/$80.63)
1 Year Target = $89.62 
1 Year Percentage Gain = 11.14%  ($89.62/$80.63)
Total 1 Year Return on Investment = 11.14% + 2.18% = 13.32%
Revenue Growth Rate   3 year =  13.67%     5 year = 10.52%    10 year = 13.39%
Earnings Growth Rate  3 year =  15.35%     5 year = 16.46%    10 year = 16.05%
Dividend Growth Rate  3 year =  11.93%     5 year = 9.62%      10 year = 15.81%
Return on Equity = 23.40%

The Technicals

The technicals today are not as good as they were just a week ago. The MACD on the daily chart is exactly like I like to see it. It's below the zero line and moving up. The ADX lines just crossed over each other demonstrating that the upward pressure is greater than the downward pressure. Also, the RSI has risen to the 50 line. This is all the result of the overall market, and TROW in particular, moving up over the last few days. This makes the price of the company a little less desirable that just a few days ago and reinforces the fact that $77-$78 was a great price.

The weekly chart also shows similar results and it can easily be seen that the price has bounced off the lower Bollinger Band.   

Daily Chart

Weekly Chart

Conclusion

As a Dividend Growth Investor I can't really find anything I don't like about the fundamentals of this company. Revenues, earnings and dividends are growing nicely and consistently and the payout ratio is low enough to allow continued dividend increases at or above 12% annually. What I wish I had done was buy this stock a week ago when the stock was near the $77-$78 level. At that level the dividend increases to 2.28% and the one year capital gain increases to approximately 16.00% for a total one year return of 18.28%. This would be a 37% increase over the gain received by buying at today's price. 

My intent going forward is to accumulate a position in this stock when the price pulls back to the $77-$78 level. There's no doubt that this is a company I'd like to own for the long term. I just need to make sure I enter into this or any trade at the best possible price. Hopefully I'll be able to start accumulating this stock soon. 

Good Luck and Good Trading.