Dividend Aristocrats In Focus Part 22: T. Rowe Price Group

In part 22 of my 54 part Dividend Aristocrats In Focus series I take a look at the operations, growth prospects, and competitive advantage of asset manager T. Rowe Price Group (TROW).  The company was founded in 1954 and has grown to $738 billion in assets under management.  The company provides retirement plans, mutual funds, separately managed accounts, and a broad array of other financial and investment services. 

T. Rowe has increased its dividend payments to shareholders for 27 consecutive years.  It is the only other asset management Dividend Aristocrat besides competitor Franklin Resources (BEN).

Competitive Advantage

T. Rowe’s competitive advantage comes from its trusted name in the mutual fund industry.  The company generates the bulk of its revenue from its mutual funds.  As a result, outperformance compared to its peers is critical for the company to continue marketing its mutual funds.  The company has outperformed its peers based on Lipper mutual fund averages.  The percentage of the company’s mutual funds that have outperformed over various time frames is shown below:

• 1 Year:  71%
• 3 Year:  76%
• 5 Year:  77%
• 10 Year:  82%

The company’s competitive mutual fund products have helped it reach its massive scale.  T. Rowe has a weaker competitive advantage than many of the other dividend aristocrats I have examined.  As is repeated ad nauseam to investors, “past performance is no guarantee of future results”.  Just because T. Rowe has outperformed its peers over the last decade, does not necessarily mean it can keep pace indefinitely.  If the company begins to slip, I would expect significant client outflows of money from its mutual funds.

Future Growth Prospects

T. Rowe’s growth is driven by rising global markets and increasing its share of the asset management industry by attracting new clients to its funds.  The company has benefitted greatly from the 5 year bull market we find ourselves in.  As asset values increase, the fund has a larger asset under management base with which to charge fees.  Of course, when markets correct, T. Rowe’s asset base will shrink, along with its fees, revenues, and earnings per share.