Linked here is a detailed quantitative analysis of T. Rowe Price Group Inc. (TROW). Below are some highlights from the above linked analysis:
Company Description: T. Rowe Price Group Inc. operates one of the largest no-load mutual fund complexes in the United States.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
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:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
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)? 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:
- NPV MMA Diff.
- Years to > MMA
Other: TROW is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index.
Conclusion: TROW did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks TROW as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $67.21 before TROW's NPV MMA Differential decreased to the $1,200 minimum that I look for in a stock with 23 years of consecutive dividend increases. At that price the stock would yield 1.61%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,200 NPV MMA Differential, the calculated rate is 12.3%. This dividend growth rate is less than the 15.0% used in this analysis, thus providing a margin of safety. TROW has a risk rating of 1.75 which classifies it as a medium risk stock.
TROW is well-positioned as an asset manager with a strong market share and a well-respected brand. It consistently produces net client inflows based on the relative performance of its funds (nearly 90% of its funds are in the top half of their categories on a five-year performance basis). When considering TROW as a possible buy, my concerns are three-fold. First, the yield at 2.18% is below my current 2.5% minimum. Secondly, its current valuation is 28% above my calculated buy price of $38.74. However, my greatest concern are the dividend fundamentals. The 15% dividend growth rate used in this valuation is driven off a strong past - the company averaged 17.4% between 2001 and 2008, but only averaged 6.1% in 2009 and 2010. For now, I will pass on TROW. For additional information, including the stock's dividend history, please refer to its data page.
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 Income Portfolio). See a list of all my income holdings here.