T. Rowe Price Group, Inc. (NASDAQ:TROW) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of March to $1.24. This will take the dividend yield to an attractive 4.5%, providing a nice boost to shareholder returns.
See our latest analysis for T. Rowe Price Group
T. Rowe Price Group's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, T. Rowe Price Group's dividend was only 63% of earnings, however it was paying out 122% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
EPS is set to fall by 5.6% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 75%, which is comfortable for the company to continue in the future.
T. Rowe Price Group Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was $1.52, compared to the most recent full-year payment of $4.96. This means that it has been growing its distributions at 13% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Although it's important to note that T. Rowe Price Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. T. Rowe Price Group is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On T. Rowe Price Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think T. Rowe Price Group will make a great income stock. While T. Rowe Price Group is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for T. Rowe Price Group that investors need to be conscious of moving forward. 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.
