4.25% yield on cost is really not that bad when you think about it. My average portfolio yield is “only” 3.6% after 8 years of investing, so this acquisition is going to push it just a tiny bit up.
To be honest, I’m really happy with this opportunity to buy some additional shares in this high-quality business. I first initiated a position in April 2022 and I have been building it up slowly since then.
Actually, you never know how the stock market really develops itself, and opportunities come and go. An example of that is my acquisition of Starbucks for 69 USD per share back in May last year. It was trading below 80 dollars for 10 weeks and it has been only going up since then.
However, I guess I’m a bit luckier with this one and the stock I’m talking about today is T Rowe Price Group ($TROW). They are in the business of investment management, especially fund management and retirement plans. It’s what we call an active management firm with relatively low fees compared to its peers.
As many of you know, I’m not a big fan of the financial industry, but that has mainly to do with banks. I have no issue owning insurance firms like Munich Re, ASR Nederland, and Chubb. T Rowe Price Group falls into the same category for me. Their business is relatively easy to understand and they seem to be less subject to corporate misbehavior.
My Stock Purchase
I initiated a position at 145 USD per share in April last year right after I published my analysis on them. I bought those shares on my DEGIRO account because that’s one of the main brokerages I use to buy US-listed shares.
Since then I’ve been mainly averaging down because the share price started falling. Hence, the below screenshot shows you additional details about my May, August and December buys.
Actually, I’m most proud on my purchase in December. It was the biggest so far and a poor fellow somewhere else on the world was willing to hand over 18 of his shares to me for $109.56. I truly hope that this wasn’t one of you, the readers 🤗
Having said that, I acquired some additional shares last week for two reasons:
- They reported earnings and this gave me enough confidence
- I really had to buy some shares in January to stick to my monthly investing plan
Why I own T Rowe Price Group
In my opinion, there is a lot to like about this stock.
Firstly, T Rowe Price has been growing its dividends for a consecutive 36 years. This includes occasional special dividends when the time was right.
This is impressive to me because they were one of a few financial firms that had ample room to continue paying dividends during the great financial crisis in 2008 and 2009.
This is especially impressive when you realize that they are very sensitive to the overall sentiment in the stock market. This is because their business model pretty much relies on Assets Under Management (AUM) and the flat fee they charge to the holders of their funds.
To explain it in plain English: when the stock market goes up, their profit goes up. When the stock market goes down, their profits go down.
This brings me to the second reason why I like T-Rowe Price so much: they are very conservative in capital allocation.
Just take a look at their balance sheet. They have almost no debt, but they did grow their shareholder equity very nicely during the last decade.
Combine that with a crisis-resistant dividend payout ratio and it’s easy to see why they can still avoid leveraging up. As an example, they paid around 1 billion in dividends in 2022, but in 2019 they were already bringing in about 1.3 billion in free cash flow.
Since then their free cash flow continued to grow and we will learn soon what the exact numbers for 2022 will be once their 10k officially gets released.
Speaking of which: Asset Under Management was quite significantly down in Q4 2022. It came in at an average of $1.28 trillion, a decrease of 22.3% and 4.7% from Q4 2021 and Q3 2022, respectively. This also impacted their earnings which were $6.70 over the entire year.
Having said that, this brings me to my third point and that’s their management. They truly know in what business they are operating and they manage it very conservatively. They are neither blind to the trend of index investing and they have a strategy to stay competitive in such a world.
If you are not convinced, just read their latest earnings report. I really enjoy reading their management commentary on pages 2 and 3, because it’s no-nonsense with a strong awareness of investor sentiment.
As you know, they often say that you get the investors you deserve. Surely $TROW must be very attractive to long-term investors, right?
Of course, every business is subject to risk and there are two main risks that I would like to call out:
- A major global catastrophic event could send the worldwide stock market down by i.e. 50%. This could result in negative earnings during that period.
- The company is not able to offer competitive products to its clients while index-investing and its popularity continue to grow.
Both risks could severely impact their profits, but I feel comfortable enough with those. A zero-debt balance sheet and a relatively low dividend should give management enough cushion to weather any prolonged market downturn.
Final thoughts
I still have room to add additional shares with regards to T Rowe Price Group. Hence, I will definitely consider adding more in future occasions or maybe even earlier if the stocks dips below $100.
It is a long-term investment for me and I’m counting on growing dividends for many years to come. According to me, this is a great example of a high-quality company that I need more of in my dividend growth portfolio.
Yours Truly,
European Dividend Growth Investor
PS: I hope you enjoyed this short-format update on a recent buy. If you do so, please let me know in the comment section below. It gives me some feedback on whether I should do this more often when I buy some shares or when I receive some dividends. An article like this costs me a maximum 2 hours end-2-end so they are much easier to produce than stock deep dives like the ones on YouTube.
