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This is Why T. Rowe Price (TROW) is a Great Dividend Stock

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

T. Rowe Price in Focus

Headquartered in Baltimore, T. Rowe Price (TROW - Free Report) is a Finance stock that has seen a price change of 17.46% so far this year. The financial services firm is currently shelling out a dividend of $1.08 per share, with a dividend yield of 2.43%. This compares to the Financial - Investment Management industry's yield of 1.73% and the S&P 500's yield of 1.28%.

In terms of dividend growth, the company's current annualized dividend of $4.32 is up 20% from last year. Over the last 5 years, T. Rowe Price has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.75%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, T. Rowe's payout ratio is 38%, which means it paid out 38% of its trailing 12-month EPS as dividend.

Looking at this fiscal year, TROW expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $12.18 per share, which represents a year-over-year growth rate of 27.14%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, TROW presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).


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