If there's one problem with T. Rowe Price (TROW 0.01%) as an investment, it's that the company's performance ebbs and flows with the fortunes of Wall Street. That connection is inherent to its asset management business, but it can lead to steep stock price declines -- which is exactly how you might describe the 50% drop the stock has taken from its 2021 peak. But for long-term income investors who think like contrarians, this could be a buying opportunity.

Tough to watch

It is probably easiest to explain the type of investor who shouldn't own shares of T. Rowe Price. If worrying about your investments keeps you up at night during bear markets, then this asset manager will be a terrible choice for your portfolio. Not only will you get to worry about the gyrations of Wall Street, but you'll also have to ruminate on the fact that T. Rowe Price's earnings tend to nosedive during market corrections. It's unavoidable.

Two people riding a seesaw.

Image source: Getty Images.

Basically, T. Rowe Price gets paid fees for managing other people's money, and the size of those fees is tied directly to the total value of the assets it's managing. There are two major factors that drive changes in a firm's assets under management (AUM) figure. The less material one for a large company like T. Rowe Price is when customers add money to or withdraw money from their accounts. The more material one is when the market goes up or down, increasing or decreasing the value of the entire AUM pool. 

Unfortunately, those factors tend to synchronize. In bull markets, AUM increases both because the market is rising and because optimistic investors are adding to their portfolios. In bear markets, AUM falls both because Wall Street is selling off and because frightened investors are pulling money out of the market. 

TROW Chart

Data source: YCharts TROW

That's the one-two punch that has hit T. Rowe Price of late. Its stock peaked in mid-2021 when its AUM was sitting at about $1.6 billion. By the end of 2023's first quarter, AUM was $1.3 billion. In Q2 2021, the company earned $3.46 per share. It earned $1.83 per share in Q1 2023. That puts the massive stock price decline into better perspective.

What goes down goes back up

The thing about the stock market is, at least historically, U.S. bear markets have always been followed by bull markets. So, eventually, we can expect that AUM will head back up again and T. Rowe Price's earnings will rebound. Investors are likely to get a lot more positive about its stock when that happens. So, buying it while it's down could be an opportunity for long-term investors who can stomach the stress of being a contrarian -- stepping in while others are selling. 

There are some comforting facts here if you're tempted to go that route. For example, T. Rowe Price has increased its dividend annually for 37 consecutive years. It has muddled through bear markets before, including the deep downturn during the Great Recession, when there were real concerns that global financial markets might collapse. This company has proven it knows how to survive hard times and keep rewarding investors along the way.

Then there's the not-so-subtle fact that T. Rowe Price has a pristine balance sheet. It carries no long-term debt, so its financials are pretty much as clean as they can get. Companies without debt don't have to worry about interest expenses, don't have to concern themselves with rolling over maturing debt (at higher rates today), and don't have bondholders breathing down their necks with a first claim on the business (relative to shareholders). A debt-free balance sheet materially increases a company's ability to survive hard times. 

Grab the yield

If you believe the market will eventually recover, as it has before, then T. Rowe Price is a financial sector stock you should be looking at today. And, thanks to its steep share price decline, the dividend yield is a historically high 4.6%. Given its long track record of dividend payouts and hikes, and its strong financial condition, contrarian investors looking for income should find this stock very appealing.