With the stock market having its worst first half of the year on record, it's no surprise that the stocks of asset managers have fared poorly. The decline in stock prices means that their assets under management are down, in addition to revenue and earnings. But this same sensitivity to stock prices means that stocks of asset managers could rebound quickly when the market eventually picks back up.
As such, the present sell-off looks like a good opportunity to pick up shares of T. Rowe Price (TROW -1.50%), a blue chip leader in the asset management industry that's trading at an attractive valuation. T. Rowe Price has historically had a high concentration of growth stocks, which may have driven its assets under management down further in 2022. But it's an area that I think will rebound over the long term.
T. Rowe Price is a time-tested Dividend Aristocrat
Shares of the Baltimore-based asset manager are down a painful 46% from their 52-week high, largely for the reasons mentioned above. At this point, shares look attractively valued at under 10 times earnings, which is both cheaper than the S&P 500's average multiple and well below the average of 15 times earnings that T. Rowe Price has traded at historically.
In addition to this attractive valuation, T. Rowe Price now sports a generous and market-beating dividend yield of 4.3%. The company has a strong track record as a dividend payer -- it's a Dividend Aristocrat that has increased its dividend payout for 36 years in a row, through multiple stock market crashes, the Great Recession, and the coronavirus pandemic. T. Rowe Price even rewarded investors with a special dividend of $3 a share last year.
This is a dividend stock for all seasons, and the dividend looks well-covered thanks to a reasonable payout ratio. The company is also returning capital to shareholders via share buybacks, with over $300 million of share repurchases during the first quarter of 2022.
Look to the stars for high ratings
T. Rowe Price is a best-in-class asset manager that's been around for 85 years and manages investments for individuals, institutional investors, retirement plans, and more. Morningstar, which rates ETFs, mutual funds, and other investment vehicles on performance, finds that the vast majority of T. Rowe Price's assets under management have beaten the category median on a three-, five- and 10-year basis. Furthermore, Morningstar assigns half of T. Rowe Price's funds a four- or five-star rating, where five stars is the highest. In addition to strong performance, T. Rowe Price is noted for its low fees, which are good for its customers.
The firm has enjoyed low turnover with client assets, and over 60% of its assets are in retirement accounts. This probably helps to insulate it from larger withdrawals during down markets, as it is more cumbersome (not to mention a bad idea for tax purposes) for a customer to withdraw funds from a retirement account like a 401(k) than it is from their normal brokerage. With strong performance, low fees, and a high degree of its assets under management locked into retirement accounts, T. Rowe Price is a company that can weather the current storm.
It has also been a winner with the advent of target date funds. These are funds in which investments and asset allocation are chosen and adjusted based on the client's planned retirement date, and they have been a popular new offering from investment managers. T. Rowe Price has attracted about $100 billion in net inflows from these types of vehicles over the last few years, and trails only investment giants Fidelity and Vanguard in terms of assets held in these types of funds.
T. Rowe Price is a foundational investment
I bought T. Rowe Price stock because it is an opportunity to add a best-in-class industry leader to my portfolio at an attractive price after asset managers sold off. The company has an attractive valuation, compelling dividend yield, resilient retirement business, and some interesting growth opportunities with target date funds. It's also a great way to invest in the eventual stock market recovery. I look forward to T. Rowe Price becoming a foundational stock of my portfolio for years to come.