Many stocks have taken a hit in recent months as investors react to rising inflation, interest rates, oil prices, production costs, and geopolitical tensions. Inflationary times can make investing tricky because it's uncertain when inflation pressures will ease.
As an investor, you have options for how to manage the situation and protect your portfolio. One effective option is to buy solid companies with good dividends at reasonable prices.
According to research from Fidelity, dividends account for 40% of the stock market's returns since the 1930s. During decades when inflation was high, dividends accounted for an even greater share of the stock market's returns. During the inflationary decades of the 1940s and 1970s, dividends accounted for 65% and 71% of the S&P 500's total returns.
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One dividend stock you can buy on sale today is T. Rowe Price Group (TROW 0.82%). Stock for the investment advisory firm has taken a hit in recent months and now trades near its cheapest valuation in decades.
Consistently growing assets under management
T. Rowe Price is a top investment advisor to clients of all varieties -- individuals, mutual funds, and separately managed accounts, to name a few.
Management at T. Rowe Price has acknowledged that the trend toward passive investing has hurt the business. It has hurt the inflow of new clients, who may not be seeking out active investment strategies the way they did previously. Despite headwinds from investors choosing passive investments over active managers, T. Rowe Price has grown its total assets under management (AUM) by 12% compounded annually in the past decade.
Here's what has investors concerned in the short term
T. Rowe Price's stock has declined recently, and it's currently 34% off its 52-week highs. Investors have expressed concern over outflows from the company's funds during the fourth quarter. During the quarter, T. Rowe Price saw $23 billion in outflows, with outflows for the year overall totaling $28 billion. Despite these outflows, the firm still grew its AUM through investment gains of $205 billion.
Investors also expressed concern over management's guidance, expecting net flows below its 1% to 3% growth target in 2022.
Following the recent sell-off, T. Rowe Price stock is trading at a cheap valuation, with a price-to-earnings ratio of 11.3, making the stock the cheapest it's been in decades.
TROW data by YCharts.
Could active management make a comeback?
Passive management has been all the rage in the past decade. However, T. Rowe Price believes that active management could play a valuable role if inflationary pressures persist in markets. It believes that professional managers can help investors navigate the volatility and challenges of investing during an inflationary time.
Changes in investor preferences, including demand for responsible investing, could also drive investors to seek out active managers to prepare for a changing world.
A strong cash position is an excellent sign for investors
Despite the outflows, T. Rowe Price grew AUM by $170 billion during the year through its investment returns. This helped boost revenue 24% and net income by 30%, to $3 billion. It also returned a boatload of cash to investors -- $2.8 billion to be precise -- buying back 5.9 million shares and paying out $1.7 billion in dividends to investors.
Also, 2022 marks the 35th straight year T. Rowe Price has raised its dividend. This makes it a member of the exclusive Dividend Aristocrats club, comprised of companies in the S&P 500 index that have increased their dividend annually for at least 25 consecutive years.
Its cash position was also a strength that enabled it to purchase Oak Hill Advisors, L.P. at the end of 2021 for stock and $2.5 billion in cash. This move helped add $47 billion in fee-based AUM, giving it another diverse stream of revenue in private market alternative strategies.
T. Rowe Price is a solid dividend stock that has consistently grown its business over the past decade. The company has shown excellent cash management ability and sits on $2 billion in cash and liquid investments, and currently trades at a cheap valuation with an attractive 3.3% dividend yield.
