If you're looking to earn passive income for years to come, Dividend Aristocrats are a good place to start. They are an exclusive group of stocks that have increased their annual dividend payout for 25 years or more.
Many stocks pay dividends only to suspend or reduce them when the going gets tough. But the Dividend Aristocrat title shows investors that stocks with this designation take their commitment to consistent dividend growth seriously. If a company forgoes raising its dividend for even a year, it loses this designation and has to start all over again.
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An excellent track record
T. Rowe Price Group (TROW -2.40%) is one excellent example of a Dividend Aristocrat. The Baltimore-based investment manager long ago achieved the Dividend Aristocrat distinction, having increased its annual dividend payout for 36 years and counting.
For 2022, T. Rowe raised its quarterly payout from $1.08 per share to $1.20, good for an increase of about 11%. T. Rowe Price is not only a stock that has grown its dividend over time, but it is also a high-yielding one. The shares currently yield 4%, which is well above the market average. Looking at its dividend payout ratio, investors can also feel good about the fact that T. Rowe Price's dividend is well-covered by the company's earnings.
In 2021, T. Rowe Price even paid out a special dividend of $3 a share to its shareholders. At the time, CEO William J. Stromberg called the special dividend an efficient way to return capital to shareholders as well as a reflection of the company's healthy balance sheet. This special dividend was a nice boost for shareholders since it was nearly equal to the $3.32 that the stock paid out in its regular quarterly dividends last year.
While investors shouldn't expect special dividends every year, it is nice to see that the company puts its shareholders first and views these special dividends as an option.
A great dividend at an attractive price
T. Rowe Price is an investment manager that offers mutual funds, retirement funds, and other financial services, so it is no surprise that the stock has fallen in 2022 as the broader stock market has declined, which has led to a decline in the value of the firm's underlying holdings.
T. Rowe Price has also established a reputation as having some of the best growth-oriented mutual funds in the industry, which has served it well for years but has hurt it in 2022 as growth stocks sold off because of rising interest rates. As such, shares of T. Rowe Price are down about 47% from their 52-week high.
This creates an opportunity for new investors to buy the stock now at both an attractive valuation of 11.5 times earnings and with a high yield. The flip side of this equation is that shares of T. Rowe Price are a good candidate to bounce back when the market rebounds, which will lead to a rebound in its assets under management.
Add this Dividend Aristocrat
For investors looking to build a stream of passive income, Dividend Aristocrats are an excellent starting point thanks to their 25-year-plus commitment to dividend growth and their reliability. T. Rowe Price is a quintessential Aristocrat with 36 years of annual dividend growth, with the added bonus that it is trading at an inexpensive valuation and should offer some significant upside when the broader market rebounds.
