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Why T. Rowe Price (TROW) is a Top Dividend Stock for Your Portfolio

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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

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 35.7% so far this year. The financial services firm is currently shelling out a dividend of $4.08 per share, with a dividend yield of 2.1%. This compares to the Financial - Investment Management industry's yield of 1.49% and the S&P 500's yield of 1.33%.

Taking a look at the company's dividend growth, its current annualized dividend of $4.32 is up 20% from last year. T. Rowe Price has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 15.60%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, T. Rowe's payout ratio is 40%, which means it paid out 40% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for TROW for this fiscal year. The Zacks Consensus Estimate for 2021 is $12.46 per share, with earnings expected to increase 30.06% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TROW is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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