Despite the volatile markets in the first quarter this year, T. Rowe Price Group, Inc.'s (NASDAQ:TROW) asset under management (AUM) grew, banking on the stellar performance of its mutual funds. Its cash inflows during the said quarter also strengthened, with the firm's funds making a significant contribution.
Besides, the firm boasts continuous dividend payments and a zero-debt status, with substantial liquidity and resources. This calls for investing in fundamentally sound funds managed by the company.
Asset Under Management Increases
T. Rowe's AUM increased by $1.5 billion sequentially to $764.6 billion in 1Q16. Encouraging performance of its mutual funds was largely the driving force behind AUM growth. About 84% of the company's mutual funds spanning across all kinds of asset classes outperformed their comparable Lipper averages based on total return for the last one-year period ended March 31, 2016.
When compared to 3-year, 5-year and 10-year periods, 86%, 84% and 89% of the company's mutual funds outperformed the Lipper averages, respectively. Morningstar rated 87% of T. Rowe's stocks, bonds and blended asset funds a four or five star, as of March 31, 2016, while its target-date retirement funds continue to post striking long-term performances.
Cash Flow Remains Strong, Dividends Attractive
In the first three months of this year, the company reported net inflows of $5.1 billion, and more than net inflows of $2.5 billion in the fourth quarter of 2015. Net inflows were also way ahead of $1.9 billion in the first quarter of 2015.
Among the major contributors were the firm's mutual funds. Stock and blended asset funds added $1.8 billion, while net inflow from money market funds was $300 million. However, total net inflow came in at $1.7 billion, partially offset by net outflows of $400 million from fixed-income funds.
Apart from the increase in net inflows, the company continues to pay attractive dividends. In 1Q16, it declared a dividend of $0.54, an increase of 2% year over year. On an annualized basis, the dividend yield translates into 2.9%. In comparison, dividend yields of its peers, including BlackRock, Inc. (NYSE:BLK) and The Bank of New York Mellon Corporation's (NYSE:BK), were 2.6% and 1.7%, respectively.
The company has also paid two special dividends in the last five years, which are not reflected in the dividend yield or payout ratio. When compared to its peers, T. Rowe continues to maintain a healthy payout ratio of 50%, which is pretty much competitive.
Zero-Debt Status, Solid Compensation
At the end of the first quarter, T. Rowe reported that it was debt-free. It also remained substantially liquid, including cash and sponsored portfolio investment holdings of about $3.1 billion, which support the company's ability to keep investing in the future. These resources help it in investing in new products and technology. During 1Q16, the company invested $35.2 million in capitalized technology and facilities.
While investment in technology is good, compensation to employees is also important, as it allows a company to build a solid network of professionals. During the first quarter of this year, T. Rowe's compensation increased by $8.7 million, mostly due to higher salaries and related benefits.
Top 4 T. Rowe Mutual Funds to Invest In
As mentioned above, T. Rowe has a solid bunch of professionals, thanks to its attractive compensation packages. Given its zero-debt status, its capital structure is also the best in the industry. This company, which mostly manages stocks, bonds and blended and money market mutual funds, also boasts of consistent dividend payments.
Add to this strong cash inflow in the first quarter, and we all know that the company is in sound shape. All the more so since its mutual funds' performances contributed the most toward the cash inflow. Impressive performance of its mutual funds over the years also helped T. Rowe's AUM to increase. Hence, investing in T. Rowe's mutual funds with solid fundamentals will be a prudent choice.
We have selected four such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer minimum initial investment within $5000, carry a low expense ratio and have no front or deferred load. These funds also have positive 3-year and 5-year annualized returns.
T. Rowe Price Retirement Balanced Fund Retirement (MUTF:RRTIX) invests in a diversified portfolio of T. Rowe Price stock and bond funds that represent various asset classes. It is intended for retired investors who seek income and relative stability from bonds, along with some capital appreciation.
The fund's 3-year and 5-year annualized returns are 2.4% and 3.8%, respectively. Its annual expense ratio of 0.5% is lower than the category average of 0.8%. RRTIX has a Zacks Mutual Fund Rank #1.
T. Rowe Price Dividend Growth Fund No Load (MUTF:PRDGX) invests at least 65% of its total assets in stocks, with an emphasis on stocks that have a strong track record of paying dividends or that are expected to increase their dividends over time.
The fund's 3-year and 5-year annualized returns are 10% and 11.4%, respectively. Its annual expense ratio of 0.64% is lower than the category average of 1.02%. PRDGX has a Zacks Mutual Fund Rank #2.
T. Rowe Price Value Fund No Load (MUTF:TRVLX) invests at least 65% of its total assets in common stocks that the portfolio manager regards as undervalued.
The fund's 3-year and 5-year annualized returns are 8.3% and 10.9%, respectively. Its annual expense ratio of 0.81% is lower than the category average of 1.1%. TRVLX has a Zacks Mutual Fund Rank #2.
T. Rowe Price Science And Technology Fund Advisor (MUTF:PASTX) invests the majority of its net assets in the common stocks of companies expected to benefit from the development and use of science and/or technology.
The fund's 3-year and 5-year annualized returns are 13.4% and 9.3%, respectively. The annual expense ratio of 1.06% is lower than the category average of 1.42%. PASTX has a Zacks Mutual Fund Rank #2.