Company Description: T. Rowe Price Group Inc. (formerly T. Rowe Price Associates) operates one of the largest no-load mutual fund and life cycle fund complexes in the United States.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
TROW is trading at a discount to 1.) and 3.) above. When also considering the NPV MMA Differential, the stock is trading at a slight premium to its calculated fair value of $103.46. TROW did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
TROW earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45% TROW earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1986 and has increased its dividend payments for 37 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
TROW earned a Star in this section for its NPV MMA Diff. of $522 This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as TROW has. The stock's current yield of 4.74% exceeds the 3.75% estimated 20-year average MMA rate.
Peers: The company's peer group includes: The Franklin Resources, Inc. (BEN) with a 6.1% yield and BlackRock Inc. (BLK) with a 2.2% yield.
Conclusion: TROW did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks TROW as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $105.80 before TROW's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 37 years of consecutive dividend increases. At that price the stock would yield 4.7%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 1.5%. This dividend growth rate is above the 1.6% used in this analysis, thus providing a tiny margin of safety. TROW has a risk rating of 1.25 which classifies it as a Low risk stock.
With a well-respected brand and a strong market share, TROW is well-positioned as an asset manager. It consistently produces net client inflows based on the relative performance of its funds. TROW's target-date retirement funds should continue to be an attractive option with baby boomers now that they have reached retirement age. With very little debt, higher return on earnings and improving investor sentiment, the company is strong contender within its industry. The stock is currently trading slightly above its calculated fair value of $103.46. For now, I will not initiate a position in TROW.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in TROW (0.0% of my Dividend Growth Portfolio).
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