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T. Rowe Price Group, Inc. (NASDAQ:TROW) will increase its dividend on the 28th of March to $1.27, which is 2.4% higher than last year's payment from the same period of $1.24. This will take the annual payment to 4.6% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for T. Rowe Price Group
T. Rowe Price Group's Payment Could Potentially Have Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, T. Rowe Price Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 78% indicates it is more focused on returning cash to shareholders than growing the business.
Over the next year, EPS is forecast to fall by 1.8%. If the dividend continues along recent trends, we estimate the payout ratio could be 62%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
T. Rowe Price Group Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from $1.76 total annually to $4.96. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
T. Rowe Price Group May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. However, T. Rowe Price Group's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The company has been growing at a pretty soft 0.8% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think T. Rowe Price Group's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments T. Rowe Price Group has been making. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Earnings growth generally bodes well for the future value of company dividend payments. See if the 11 T. Rowe Price Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is T. Rowe Price Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.