How Is T. Rowe Investing in Growth Initiatives?



T. Rowe Price Group’s debt and holdings

T. Rowe Price Group (TROW) was debt free as of December 31, 2015, with substantial liquidity and resources. On that date, the company had cash and fund investment holdings of $2.8 billion as compared to $3.4 billion in the previous year’s corresponding quarter. These resources allow the company to invest in technology, investment professionals, and new investment strategies. In 2016, the company is expected to maintain its debt-free status and strong liquidity.

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Initiative spending

Over time, the company has increased funding for long-term initiatives to innovate, introduce new funds, and expand its distribution channels. In 2015, the company invested $151 million in capitalized technology and facilities. T. Rowe Price Group returned $2 billion to shareholders through regular dividends, stock repurchases, and special dividends in 2Q15. In 4Q15, the company declared a dividend of $0.52, a rise of 18% as compared to the previous year’s corresponding quarter. The dividend translated into an annualized dividend yield of 3.0%. In comparison, the company’s peers have the following yields:

  • BlackRock (BLK): 2.8%
  • Bank of New York Mellon (BK): 1.7%
  • State Street (STT): 2.0%

Together, these companies form 1.7% of the SPDR S&P 500 ETF (SPY).

T. Rowe Price Group has successfully reduced its weighted average number of common shares since the end of 2014. The company has bought back 13.1 million shares, 5% of its common stock, for a total of $988 million. In 4Q15, the company bought 1.9 million shares for a total of $136 million.

Growth in operations

T. Rowe Price Group’s revenues increased in 4Q15, but expenses rose at a faster pace. The higher spending reflects investments in product offerings and fund managers. The company has a strong operating margin of 43% and a net income margin of 29%. T. Rowe Price Group has grown because of its funds’ strong performance and its expanded number of product offerings in existing and new markets.

In the next part of this series, we’ll see how the company compares to its peers based on price-to-earnings ratio.


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