Ah, mid-February. The markets have been on another Cedar Fair rollercoaster ride and we've been buckled in feeling the stomach drop, while going through winters that are warm with no 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.
Intro to T. Rowe Price
Remember my journey article from almost two years ago? Well, my investing career all began with T. Rowe Price (NASDAQ:TROW). I didn't know any better as a young 20-year-old in the investing community and 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 brokerage and investment advisory firm arena: we have T. Rowe, Blackrock (NYSE:BLK), Prudential Investments (NYSE:PRU), Vanguard, Bank of New York Mellon (NYSE: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 management, which is hilarious standing next to Blackrock's $4.5 trillion in AUM. For those of you who are new to the investment advisory service - assets under management or AUM "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 in 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. I would love to see if it fits the bill and enables me to 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 (NYSE: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 Analysis
1.) Dividend Yield - okay, T. Rowe and Blackrock 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 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 -- whereas at $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
Overall, love the company. I 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, AND they were positive and continued 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 four 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!