This Dividend Aristocrat Is 10% Undervalued And Rated A “Buy”

I want to tell you about a high-quality stock, possibly one of the best stocks to buy now, that pays big, growing, reliable dividends. These growing dividends are funded by growing profit because this business is an asset manager benefiting and profiting from the upward slope of global equities. Asset managers operate incredible business models. They're exposed to global capital markets, which is where a ton of money is made. And then they collect fees on top of that, making it a powerful one-two punch. Adding all of the liquidity from stimulative fiscal and monetary policy almost makes it too easy. This business is almost a lock for higher profits and dividends over the long run.

T. Rowe Price Group Inc. - stock ticker TROW - is a large investment management company that manages assets for individual and institutional investors. Founded in 1937, T. Rowe Price is now a $40 billion (by market cap) investment management mammoth that employs more than 7,500 people.

This one-two punch means the business is almost a lock for more profit over the long run. And more profit translates to higher dividends, which is exactly what you get here. The company has increased its dividend for 35 consecutive years, making them a Dividend Aristocrat. Even with the inherent volatility in markets, the dividend has been anything but volatile. The 10-year dividend growth rate is 12.8%, which is outstanding.

And you're pairing that double-digit dividend growth rate with the stock's market-beating yield of 2.4%. Also, the dividend is quite safe. The payout ratio is only 43.3%. I view the "sweet spot" for a dividend growth stock to be a yield of between 2.5% and 3.5%, paired with a high-single-digit (or better) dividend growth rate. This stock is basically right there.

The valuation only adds to the appeal. The stock's P/E ratio is 17.9. That's materially below the broader market's earnings multiple. While it's actually higher than the stock's own five-year average P/E ratio, I think this is a case where the market simply got it wrong before.

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