T. Rowe Price (TROW) Increases Its Dividend by 11.1%: Worth a Look? – February 9, 2022
T. Rowe Price Group, Inc.it is (TRUE – Free report) the board of directors recently approved an 11.1% sequential increase in its quarterly common stock dividend. The revised quarterly dividend now stands at $1.20 per share compared to the previous figure of $1.08. The amount will be paid on March 30 to its shareholders of record as of March 15, 2022.
This is the investment manager’s 36th consecutive annual dividend increase, reflecting its commitment to returning shareholder value with strong cash-generating capabilities. Before this increase, T. Rowe Price had increased its dividend by 20% (from 90 cents to $1.08 per share) last February.
Based on the last day’s closing price of $151.28 per share, the dividend yield is currently 3.2%. The yield is not only attractive to income investors, but also represents a steady stream of income.
As of December 31, 2021, T. Rowe Price remains debt-free with substantial liquidity, including cash and cash equivalents of $1.52 billion, supporting its ability to continue investing in the future. For 2022, TROW forecasts capital expenditures of approximately $295 million, three-quarters of which will be for technology development.
Substantial liquidity paves the way for impressive capital deployment activity. During the third quarter of 2021, the company paid a special cash dividend of $3 per share. In February 2020, its board of directors increased the common stock repurchase authorization by 10 million shares, bringing the total authorization to 22.4 million shares.
During the fourth quarter of 2021, 3.1 million shares were repurchased by the firm. This reflects T. Rowe Price’s commitment to returning value to its shareholders through its strong cash generation capabilities. Therefore, with a debt-free position, capital deployment activities appear viable in the long term.
Investors can view this asset manager’s fundamentals and growth opportunities before making any investment decisions.
T. Rowe Price’s net revenues have grown at a compound annual growth rate (CAGR) of 12.4% over the past six years (2016-2021). Additionally, TROW is focused on strengthening the business through several planned initiatives, improving its technology platform and achieving long-term cost savings.
TROW’s ability to sustain the dividend hike also depends on earnings growth. Its past performance paints a robust earnings picture. T. Rowe Price has posted a 22% growth rate in earnings over the past three to five years, compared to the 6.7% increase recorded by the industry to which it belongs. Its expected growth in earnings per share over the long term (next five years) is 5.9%. If this momentum continues in the period ahead, these dividend payouts will be sustainable in the future.
T. Rowe Price’s return on equity of 36.1% versus the industry average of 17.08% highlights its better efforts in managing its shareholders’ capital than its peers.
However, rising operating costs could likely hamper earnings growth. Additionally, the overreliance on investment advisory fees and US equity assets is a concern. Thus, investors should consider these factors before making a decision.
Shares of T. Rowe Price have lost 30.4% in the past six months, more than the industry’s 8.4% plunge.
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Other companies undertaking similar actions
In recent months, several companies have rewarded their shareholders with increases in dividends. Some of them are Midland States Bancorp, Inc. (MSBI – free report), Home Street, Inc.it is (HMST – free report) and Fidelity National Information Services Inc. (FIS – free report).
MSBI declared a quarterly cash dividend of 29 cents per share, up 3.6% from the previous payout. The dividend will be paid on February 18 to all its shareholders of record on February 11.
The increase represents the 22nd consecutive annual increase in Midland States’ quarterly cash dividend. Earlier, MSBI reported a 4.5% rise to 28 cents per share in November 2021.
HMST declared a quarterly dividend of 35 cents per share, up 40% from the previous payout. The dividend will be paid on February 23 to its shareholders of record on February 9.
This is the third dividend increase by HomeStreet. HMST had previously increased its dividend by 66.7% to 25 cents per share in February 2021.
In line with its updated capital allocation strategy announced in November 2021, Fidelity has increased its quarterly common stock dividend by 21% from the previous quarter’s payout to 47 cents per share in January this year. The new dividend will be paid on March 29 to its shareholders of record on March 25, 2022.
Since March 2012, Fidelity National has increased its dividend eight times. Its dividend was last increased in February 2021 by 11% to 39 cents per share. This reflects FIS’s commitment to return funds to its shareholders with strong cash generation capabilities.