Last update on 2024-06-27

T. Rowe Price Group (TROW) - Dividend Analysis (Final Score: 6/8)

T. Rowe Price Group's (TROW) dividend analysis scored 6/8, showcasing stability and performance through an 8-criteria system, ideal for income-focused investors.

Short Analysis - Dividend Score: 6

We're running T. Rowe Price Group (TROW) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of T. Rowe Price Group (TROW) evaluates the company's dividend policy with an 8-criteria system. TROW scores 6 out of 8, reflecting a solid dividend yield higher than the industry average and a remarkable dividend growth over 20 years. The company has maintained an average payout ratio lower than 65% and consistently covered dividends with earnings. Dividends have increased steadily every year without dropping significantly, showcasing stability and reliability, and TROW has been paying dividends for over 25 years. However, cash flow coverage has been unstable at times, and stock repurchase rates have fluctuated slightly over the past 20 years.

Insights for Value Investors Seeking Stable Income

Based on the analysis, T. Rowe Price Group (TROW) presents itself as a strong candidate for income-focused investors. Its high dividend yield, consistent payment history, and solid financial coverage make it a reliable source of dividends. However, some caution is necessary due to occasional instability in cash flow coverage and stock repurchases. Overall, TROW appears to be a good stock worth investigating further for its robust dividend policy and commitment to returning capital to shareholders.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is a key indicator of the income generated from an investment relative to the capital invested. A higher dividend yield can be attractive to income-focused investors and may indicate that the stock is undervalued.

T. Rowe Price Group's current dividend yield of 4.5315% is higher than the industry average of 4.33%, which is a positive sign for income-focused investors. When examining the trend over the last 20 years, it's clear that the dividend yield has seen significant fluctuations, ranging from a low of 1.188% in 2006 to a high of 5.7071% in 2015. The recent upward trend, culminating in the current yield, suggests an increasing willingness to return capital to shareholders. Notably, periods of higher yields, such as 2008 and 2015, often coincided with drops in stock prices, highlighting potential undervaluation. The consistency in yield improvements indicates a robust dividend policy even amidst market volatility.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for T. Rowe Price Group (TROW) and why it is important to consider

The criterion at hand is the dividend growth rate over the past 20 years, specifically if it is higher than 5%. This criterion is significant because a consistent and substantial dividend growth rate is a strong indicator of a company's financial health and its ability to generate profit. Investors looking for a reliable income stream will consider this an essential factor, as it suggests that the company can be expected to continue increasing its dividend payouts over time.

Average annual Payout Ratio lower than 65% in the last 20 years?

Explain the criterion for T. Rowe Price Group (TROW) and why it is important to consider

A payout ratio lower than 65% over the last 20 years is typically a sign of a financially healthy company that retains enough earnings to reinvest for growth while also providing dividends to shareholders. A lower payout ratio implies that the company is not overextending its earnings to cover dividends, indicating financial stability and a sustainable dividend policy.

Dividends Well Covered by Earnings?

Interpret how well dividends are covered by earnings, focusing on analyzing the Earnings per Share (EPS) relative to Dividends per Share.

When evaluating whether dividends are well covered by earnings, we look at the payout ratio, which is calculated by dividing dividends per share by earnings per share. A lower payout ratio generally suggests that a company has more room to maintain or grow dividends in the future, as it indicates that only a portion of earnings is being paid out as dividends while the rest is being reinvested into the business. In this case, T. Rowe Price Group's EPS over the years has shown a consistent uptrend, except for a dip in 2022 and some fluctuations in the earlier years. Conversely, dividends per share saw a sharp increase in certain years, particularly in years when special or extraordinary dividends were distributed (e.g., 2013 and 2021). Examining the dividends covered by EPS: the ratios (e.g., 0.397 in 2003, 0.318 in 2004, to 0.611 in 2023) generally stay below 1.0, indicating that dividends remain well-covered by earnings. The strong coverage ratio, particularly in the recent years, underscores the company’s sound financial health and prudent dividend policy. This trend is favorable for investors seeking dividend sustainability, although continuous monitoring is imperative, especially given the 2022 EPS dip and potential macroeconomic challenges ahead.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow refers to a company's ability to pay out dividends to its shareholders from its free cash flow. This is crucial for sustainability.

Examining T. Rowe Price Group's historical data, a high ratio of free cash flow to dividend payout is generally desirable as it indicates a company's strong ability to cover dividend payments. From 2003 to 2023, the coverage ratio fluctuated, falling sharply in 2016 and 2017 to 24.36 and 12.97 respectively, then normalizing. This instability in the mid-2010s, followed by recovery, suggests varied operational efficiency or one-time impacts during those years. For example, in 2023, the ratio of 1.23 indicates that the dividend payments are well-covered by free cash flow, showcasing a healthy trend, while prior inconsistencies warrant cautious optimism.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Over the past 20 years, T. Rowe Price Group (TROW) has shown remarkable stability in its dividend payments to shareholders. The dividend per share started at $0.35 in 2003 and has shown a consistent upward trajectory, reaching $4.88 in 2023. Importantly, there has not been a single year during this period when the dividend was reduced by more than 20%. Even during the economic downturns and financial crises that occurred over this period, TROW maintained its dividend payments, demonstrating formidable resilience and a shareholder-friendly approach. This trend is exceptionally good for investors who rely on a stable and growing dividend income, as it indicates both strong financial health and a commitment to returning capital to shareholders consistently.

Dividends Paid for Over 25 Years?

This criterion examines if a company has a history of paying dividends for over 25 years, which indicates financial stability and a commitment to returning profits to shareholders. It is a sign of a company's consistent performance and shareholder-friendly management.

T. Rowe Price Group (TROW) has been paying dividends consistently for the past 25 years, from 1998 to 2023. The dividend per share has shown a positive trend over these years, increasing from $0.1775 in 1998 to $4.88 in 2023. This showcases the company's strong financial health and stable profitability, making it a reliable choice for dividend investors. Such a long track record of dividend payments is a very good sign for the criterion, indicating TROW's robust and shareholder-centric financial policies.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases refers to the consistent buyback of shares by the company over a period, indicating strong financial health and a commitment to returning value to shareholders. It is critical because regular buybacks can enhance earnings per share (EPS) and signal management's confidence in the company's prospects.

Analyzing the number of shares of T. Rowe Price Group (TROW) over the last 20 years reveals a mix of years with stock repurchases and some years without. The average repurchase rate over this period is -0.6575, indicating a net reduction in shares outstanding, which is typically a good trend. Moreover, the reliable repurchase years such as 2008, 2009, 2011, 2012, 2015, 2016, 2017, 2019, 2020, 2021, 2022, and 2023 show a strong pattern of management returning capital to shareholders even during economically challenging years like 2008-2009. This persistent trend of share buybacks demonstrates TROW’s robust financial health and a shareholder-friendly approach, which is favorable for the long-term investor.