Week #8TROW
Stock of the Week #8 — T. Rowe Price Group (TROW)
92Five-box test: ✓ Pays · ✓ Raises · ✓ Safe · ✓ Undervalued · ✓ Yield that matters
Week eight, another $100, and this week we add a corner of the market we didn't own yet, and the most honest write-up we've done so far.
So far we've owned a rural-goods retailer (Tractor Supply), a medical-device maker (Medtronic), a landlord (Realty Income), a utility (NextEra), a snack giant (PepsiCo), the payroll company (ADP), and a home-improvement King (Lowe's). This week we add Financials for the first time, with T. Rowe Price (TROW), one of the best-known names in American money management.
Why T. Rowe Price
TROW is a 38-year Dividend Aristocrat. It has raised its dividend every year for 38 straight years, and it does so from a position of almost absurd financial strength: the company carries zero long-term debt and sits on billions in cash. Morningstar rates its capital allocation "Exemplary," their top mark. When a company has no debt and pays out only about half its earnings, the dividend is about as safe as a dividend gets.
It also pays the highest yield we've bought yet, about 4.6%. A $100 investment here adds roughly $4.64 a year in income, nearly double what ADP or Lowe's added. For a portfolio whose whole job is building an income stream, that matters.
The five boxes
- Pays: yes, 40 years of uninterrupted dividends.
- Raises: 38 straight years of increases. A Dividend Aristocrat.
- Safe: about 55% of earnings paid out, backed by zero debt. Extremely secure.
- Undervalued: today's yield sits modestly above its own recent average, so it's reasonably priced. This is the softest box, more on that below.
- Yield that matters: about 4.6%, comfortably our highest, and the box it wins on.
Five boxes, five checks, for a DividendAbundance Score of 92, Exceptional, our first name to reach the top tier.
The honest part: a great dividend on a shrinking business
Here's where we owe you the full picture, because the score alone doesn't tell it.
TROW is an active money manager. It picks stocks and bonds for its funds and charges a fee to do it. The problem is that the whole world is drifting toward passive index funds, which charge almost nothing, and that shift is pulling money out of firms like this one. TROW's assets have been shrinking slowly for years as clients move to cheaper options, and a lot of its funds haven't been beating those cheap index funds lately. Morningstar calls its competitive moat "narrow," not "wide," and projects the business grows revenue barely more than 1% a year.
So this is not a fast-growing compounder like ADP or Lowe's. It's the opposite kind of bet: a financially bulletproof company paying a high, safe dividend while its core business slowly loses ground. The reason we're comfortable buying it anyway is that first word, bulletproof. With no debt and a payout that takes only half of profits, TROW can keep paying and raising this dividend for a very long time, even if it never grows much. We're buying it for the durable, high income it throws off today, not for a growth story we don't believe is there.
That's also why the "undervalued" box is our soft one. Independent analysts peg TROW as roughly fairly valued right now, not a deep bargain. It's reasonably priced, and the yield is genuinely high, but we're not pretending it's the 33%-off sale that Lowe's was last week.
The numbers on this week's buy
- Invested: $100.00
- Bought: 0.8928 shares at $112.00
- New annual dividend income added: about $4.64 per year, our biggest single-week boost yet
- Every dividend flows into the next pick, so the income keeps compounding between buys.
Eight weeks in, eight businesses, and for the first time a name we bought with our eyes open about its weak spot. That's the whole point of doing this in public. The running totals are on the portfolio page, and the slider lets you drag through time to watch the income build.
That's week eight. We added Financials, we added our highest yield, and we told you the honest tradeoff that came with it. See you next week for pick number nine.
This is not financial advice. We're individual investors sharing our own approach and the reasoning behind our own real decisions, not licensed advisors. We own, or are buying, the stocks we write about in this series. Do your own research and consider speaking with a financial professional before investing. Dividend figures, yields, share counts, and prices are accurate to the best of our knowledge as of the publish date and will change over time.