T. Rowe Price (TROW 4.77%) is one of the most attractive dividend stocks you can find. The asset management company, which runs the T. Rowe Price family of investments, has all the attributes of a great dividend stock. It is one of the leaders in its market, with some $1.4 trillion in assets under management, and it has raised its dividend each year for the past 36 years. Only a few dozen stocks, called Dividend Kings, have longer streaks.
That commitment to the dividend stems from its incredible capital management, as the company carries no long-term debt and has substantial cash, which enables it to maintain and increase its dividend -- even in hard times.
You really couldn't go wrong adding T. Rowe Price to your portfolio as a dividend stock, but I think there's a stock within its industry that looks like an even better option: BlackRock (BLK 0.69%). Let's take a look at the two side by side.
Long live dividends
If you compare the two dividends, T. Rowe Price's is actually better. But other factors come into play, which we'll get into.
T. Rowe Price, which trades at around $114 per share, recently declared a $1.22 dividend in the third quarter, the same level as the past two quarters. It pays out the dividend at a high yield of 4.32% per share, which is above average, and this is the 36th straight year that the dividend has increased.
I really don't see a scenario in the near future where T. Rowe does not bump up its dividend, due to its pristine balance sheet and abundance of cash. In the first half of the year, it increased its cash to $2.2 billion from $1.7 billion at the start of the year, and had $2 billion in free cash flow.
One concern is its payout ratio, which has climbed to 66%. That is high, but it is based on the fact that the asset manager has endured some difficult quarters over the past two years from the bear market. That payout ratio should go down as the markets stabilize. The second half likely won't be anything like the first, but even if there is a dip, T. Rowe Price has the capital to keep feeding its dividend.
As the world's largest asset manager, with about $9.4 trillion in assets under management, BlackRock is a competitor of T. Rowe Price's. While T. Rowe Price has net outflows into its equity funds, BlackRock, which runs the iShares family of funds, saw huge net inflows into its equity funds, thanks in large part to its massive portfolio of exchange-traded funds (ETFs). Its equity ETFs had $70 billion in net inflows, up from $48 billion a year ago. Also, through its actively managed portfolios, it had a surge of inflows from institutional investors in the quarter -- $86 billion, up from $5 billion in the second quarter of 2022.
BlackRock, which trades at about $696 per share, declared a $5 dividend in the third quarter, the same as the past two quarters. This is the 13th straight year that BlackRock has raised its dividend. The yield is 2.9%, and the payout ratio is around 56%.
If you compare these numbers to T. Rowe Price, the dividend is lower, the streak of annual increases is shorter, and the payout ratio is only slightly better. But here's why I'd go with BlackRock over T. Rowe Price.
More bang for the buck
It is clear that you are going to get a great dividend with either one of these stocks. T. Rowe Price has the balance sheet to weather any storms, and BlackRock is a dominant force in its market and has the size, scale, and diversity of assets to navigate downturns.
The big difference between the two is that BlackRock's stock has been the far better performer over the long term, whether you go back five, 10, or even 20 years. Going back 10 years as of Aug. 10, it has an annualized return of 9.5% to T. Rowe Price's 4.3%, and over the past 20 years, it has returned 14.6% on an annualized basis to 9% for T. Rowe Price.
And with its dominant position as the leader in the fastest-growing segment of the market, ETFs, that should continue. ETFs have averaged 16% annual growth in assets since 2016 and are expected to exceed that growth rate over the next five years with the emergence of actively managed ETFs.
ETFs and the next bull market should help carry BlackRock to strong returns over the next few years. In comparison, T. Rowe Price has been late to the game with ETFs, launching their first batch of active ETFs in the past few years, so while they may gain some market share, they are but a minor player in the space.
So BlackRock not only gives you an excellent, reliable dividend, it should also continue to deliver long-term, market-beating returns.
