Dividend Aristocrats In Focus Part 22: T. Rowe Price Group

In part 22 of my 54 part Dividend Aristocrats In Focus series I take a look at the operations, growth prospects, and competitive advantage of asset manager T. Rowe Price Group (TROW).  The company was founded in 1954 and has grown to $738 billion in assets under management.  The company provides retirement plans, mutual funds, separately managed accounts, and a broad array of other financial and investment services. 

T. Rowe has increased its dividend payments to shareholders for 27 consecutive years.  It is the only other asset management Dividend Aristocrat besides competitor Franklin Resources (BEN).

Competitive Advantage

T. Rowe’s competitive advantage comes from its trusted name in the mutual fund industry.  The company generates the bulk of its revenue from its mutual funds.  As a result, outperformance compared to its peers is critical for the company to continue marketing its mutual funds.  The company has outperformed its peers based on Lipper mutual fund averages.  The percentage of the company’s mutual funds that have outperformed over various time frames is shown below:

  • 1 Year:  71%
  • 3 Year:  76%
  • 5 Year:  77%
  • 10 Year:  82%

The company’s competitive mutual fund products have helped it reach its massive scale.  T. Rowe has a weaker competitive advantage than many of the other dividend aristocrats I have examined.  As is repeated ad nauseam to investors, “past performance is no guarantee of future results”.  Just because T. Rowe has outperformed its peers over the last decade, does not necessarily mean it can keep pace indefinitely.  If the company begins to slip, I would expect significant client outflows of money from its mutual funds.

Future Growth Prospects

T. Rowe’s growth is driven by rising global markets and increasing its share of the asset management industry by attracting new clients to its funds.  The company has benefitted greatly from the 5 year bull market we find ourselves in.  As asset values increase, the fund has a larger asset under management base with which to charge fees.  Of course, when markets correct, T. Rowe’s asset base will shrink, along with its fees, revenues, and earnings per share. 

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Disclosure: I am not long any of the stocks mentioned in this article

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SureDividend 4 years ago Author's comment

That article is incorrect about the 26x PE multiple. You can see more in the comments of the article. I believe the author may have made an error confusing PE10 (price divided by AVERAGE earnings over 10 years) with PE on accident, but that is just a guess.

Ilene Carrie 4 years ago Contributor's comment

Yes, he's using CAPE. That explains why it's high - he's counting in 2008/9 where many stocks had no earnings to the crash in financials. I wonder if his theory was based on CAPE in the first place.

Ilene Carrie 4 years ago Contributor's comment

Thanks! I'll go read those comments.

Ilene Carrie 4 years ago Contributor's comment

Here's an example, Henry Blodget says "26." http://www.businessinsider.com/long-term-stock-chart-pe-ratio-2014-10. Your number is 18, and here's a site that says trailing is 18 (matches your site) and forward is about 15: http://online.wsj.com/mdc/public/page/2_3021-peyield.html. It's odd that if the number is so important for making predictions, that people are so unclear on what number they are using (trailing vs. forward) and how they are calculating it. I don't know where Henry Blodget got his numbers, but it seems like he shouldn't be confused himself on the topic....

SureDividend 4 years ago Author's comment

I have no idea. There is only one real PE multiple for the S&P 500. It is currently 18.28.

Source: http://www.multpl.com/

Ilene Carrie 4 years ago Contributor's comment

SureDividend, maybe you can help me with another question I have on the S&P's P/E. Some authors are saying it's about 16 and others are quoting about 26 (and saying it's at historical highs). Why are these numbers different from one author to another? Thanks! Ilene