Mutual fund company T. Rowe Price (TROW 2.32%) has grown tremendously over the years, and its investors have been rewarded with excellent stock price growth, as well as more than three decades of consecutive annual dividend increases. Here's how T. Rowe Price has managed to deliver such strong performance, and why there's no end in sight to the company's excellent track record.
About T. Rowe Price
T. Rowe Price was founded in 1937 and is well known for offering a variety of mutual fund products. In addition, the company offers advisory and account management services for individuals, institutions, and retirement plans.
The company has grown tremendously over the years, particularly in the roughly three decades since its IPO. At the time of its IPO, T. Rowe Price was valued at just under $200 million, and thanks to its innovative product offerings and the strong performance of its funds, the company currently has a market cap of nearly $20 billion.
Speaking of performance, T. Rowe Price's mutual funds have done extremely well overall. As of the latest quarterly results, 85% of the company's funds, including more than 90% of retirement funds, have beaten their 10-year Lipper averages, a widely used mutual fund benchmark. 61% were in the top Lipper quartile over the past 10 years.
What is a Dividend Aristocrat?
Dividend Aristocrat is the term commonly used for stocks included in the S&P 500 Dividend Aristocrats Index. This includes stocks that are in the S&P 500 index that have increased their dividend payments at least once per year for 25 or more consecutive years. T. Rowe Price is a S&P 500 stock, and its March 2017 dividend increase was the company's 31st annual increase in a row.
While an investment's past performance (and dividend history) isn't a guarantee of future results, an established pattern of dividend increases shows stability in the underlying business, as well as an ongoing commitment by management to return capital to shareholders.
Room to grow?
T. Rowe Price continues to grow rapidly. As of the second quarter of 2017, the company now has $903.6 billion in assets under management, a year-over-year growth rate of more than 16%. To be fair, most of this was due to the excellent performance of the stock market and the company's mutual funds, but $4.4 billion of the growth was a result of net inflows.
Looking forward, T. Rowe Price is taking steps to continue its growth story no matter what the market is doing by launching new mutual fund products -- including two so far this year -- along with developing more new products for the future, and investing heavily in its online capabilities.
Dividends and growth are a wonderful combination
Dividends are certainly nice, but growing dividends combined with the possibility of capital appreciation can make you rich over time. I already mentioned how much T. Rowe Price has grown since going public just over 30 years ago. Since that time, the company's stock price has risen more than 10,000%. Including dividends, the total return for T. Rowe Price's publicly traded shares is a staggering 19,000%. In other words, a $10,000 investment in the company's 1986 IPO would be worth more than $1.9 million today, assuming reinvestment of all dividends.
At the current share price, T. Rowe Price's dividend translates to a 2.8% yield, and it's also important to mention that the company has been known to issue special dividends from time to time, like the $2-per-share payment it authorized in 2015. The company's cash and short-term investments are approaching the level where they were before the last special dividend, so another one in the not-too-distant future is certainly a possibility.
With plenty of cash on the balance sheet, and a dividend payout ratio of less than 40%, there's no reason to believe the company's streak of dividend increases will be in danger anytime soon. T. Rowe Price could be a smart way to get the income and growth you're looking for in your portfolio.