A good way to diversify your Finance holdings is to look beyond the banks to firms that are leaders in their niche markets. Stocks with well-established brands should be able to keep fuelling their growth, which in turn will give them more cash for dividends. One well-known brand is a stock we cover in our advisory on U.S. investments, Wall Street Stock Forecaster.
T. ROWE PRICE GROUP INC. (Nasdaq symbol TROW; www.troweprice.com) sells mutual funds and wealth management services.
On September 30, 2012, the company had a record $574.4 billion of assets under management, up 17.3% from $489.5 billion at the end of 2011.
The company continues to see strong demand for its “Retirement Funds,” which invest in other Price Group mutual funds and automatically adjust the buyer’s portfolio balance according to their age. Retirement Funds accounted for 47% of the company’s fund sales in the latest quarter.
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T. Rowe Price’s fee income varies with the value of the assets it manages, so it is also benefiting from rising stock markets.
That helped push up its revenue by 13.3% in the third quarter of 2012, to $769.7 million from $679.4 million a year earlier. Earnings rose 33.1%, to $245.7 million, or $0.94 a share, from $184.6 million, or $0.71.
The company will pay a special dividend of $1.00 a share on December 28, 2012. Even after this payment, T. Rowe Price will hold cash and investments of about $2 billion, or $7.85 a share. It also has no long-term debt. Its regular quarterly dividend of $0.34 a share yields 2.1% on an annualized basis.
The stock is up 22% in the past year; it now trades at 19.6 times the company’s forecast 2012 earnings of $3.37 a share.
In the latest edition of Wall Street Stock Forecaster, we look at whether T. Rowe Price is trading at a reasonable multiple to earnings and whether its share price can keep rising. We also look at whether it will be able to continue raising its dividend. We conclude with our clear buy-hold-sell advice on the stock.
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A lot has been written about the baby boomers moving into retirement and the effect that will have on the markets. Do you think it is a smart investment strategy to focus on financial stocks that will be handling the money for this increasing flood of retirees? Let us know what you think.
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