T. Rowe Price Group's (NASDAQ:TROW) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of T. Rowe Price Group, Inc. (NASDAQ:TROW) has announced that the dividend on 28th of March will be increased to $1.27, which will be 2.4% higher than last year's payment of $1.24 which covered the same period. This makes the dividend yield 4.6%, which is above the industry average.

View our latest analysis for T. Rowe Price Group

T. Rowe Price Group's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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 company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Over the next year, EPS is forecast to fall by 1.8%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 62%, which we are pretty comfortable with and we think is feasible on an earnings basis.

T. Rowe Price Group Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $1.76 in 2015, and the most recent fiscal year payment was $4.96. This means that it has been growing its distributions at 11% 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

The company's investors will be pleased to have been receiving dividend income for some time. T. Rowe Price Group hasn't seen much change in its earnings per share over the last five years. T. Rowe Price Group is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On T. Rowe Price Group's Dividend

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. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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