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Why T. Rowe Price (TROW) is a Top Dividend Stock for Your Portfolio

Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does T. Rowe Price (TROW) have what...

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This story originally appeared on Zacks

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

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While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

T. Rowe Price in Focus

Based in Baltimore, T. Rowe Price (TROW) is in the Finance sector, and so far this year, shares have seen a price change of 40.08%. Currently paying a dividend of $4.08 per share, the company has a dividend yield of 2.04%. In comparison, the Financial - Investment Management industry's yield is 1.68%, while the S&P 500's yield is 1.41%.

In terms of dividend growth, the company's current annualized dividend of $4.32 is up 20% from last year. T. Rowe Price has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 15.60%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, T. Rowe's payout ratio is 37%, which means it paid out 37% of its trailing 12-month EPS as dividend.

TROW is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $12.92 per share, representing a year-over-year earnings growth rate of 34.86%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, TROW is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).



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