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Is T. Rowe Price A Buy Before February's Dividend Increase?

Published Fri, 11 Jan 2019 12:27:20 -0500 on Seeking Alpha

A true gem in a hammered industry
Shares of asset management companies have performed poorly recently. The rising popularity of low-cost ETFs impacted active fund managers harshly. When a whole sector gets out of favor, it is not uncommon that the baby is thrown out with the bathwater. I believe that this is what happened with T. Rowe Price (TROW), which is an outstanding company, yet its shares couldn't escape the rout.
Is the valuation attractive enough to take a closer look?
What first alerted me was the unusually high entry dividend yield. Going back to 1995, this stock provided a higher than 3.0% yield in only 5.9% of the time. When you consider that T. Rowe Price is a Dividend Champion with a 32-year dividend-raising streak, and the company typically increases the dividend in February, the story gets even more interesting.
Source: Yieldchart.com
Although the next dividend increase is only a couple of weeks away making the stock very attractive from an income point of view, I always look at several metrics of valuation before digging deeper into the analysis. Considering the EV/EBIT multiple, the stock has only been cheaper during the financial crisis of 2008-2009 within the last 10 years.

Looking at the chart from FAST Graphs also shows that the current valuation is out of the historical range. All in all, the valuation looks attractive enough to move on to the qualitative side of the business.

The quality is also there
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