If you’re looking to generate passive income for years to come, Dividend Aristocrats are a good place to start. They’re an exclusive group of stocks that have increased their annual dividend payouts for 25 years or more.
Many stocks only pay dividends to suspend or reduce them when the going gets tough. But the title “Dividend Aristocrat” tells investors that stocks with the label take their commitment to consistent dividend growth seriously. If a company doesn’t increase its dividend for even a year, it loses that designation and has to start over.
An excellent track record
T. Rowe Price Group (TROW -0.56%) is an excellent example of a Dividend Aristocrat. The Baltimore-based investment manager long ago earned Dividend Aristocrat recognition after increasing and counting its annual dividend payout for 36 years.
For 2022, T. Rowe increased its quarterly payout from $1.08 per share to $1.20, an increase of about 11%. T. Rowe Price is not only a stock that has increased its dividend over time, it’s also a high-yield one. At 4%, the shares are currently yielding well above the market average. Looking at the payout ratio, investors can also be pleased to know that T. Rowe Price’s dividend is well covered by the company’s earnings.
In 2021, T. Rowe Price even paid a special dividend of $3 per share to its shareholders. At the time, CEO William J. Stromberg called the special dividend an efficient way to return capital to shareholders and a reflection of the company’s healthy balance sheet. That special dividend was a nice boost for shareholders, as it nearly matched the $3.32 the stock paid out last year as part of its regular quarterly dividends.
While investors shouldn’t expect special dividends every year, it’s nice to see that the company is putting its shareholders first and making those special dividends an option.
A great dividend at an attractive price
T. Rowe Price is an investment manager that provides mutual funds, pension funds, and other financial services, so it’s not surprising that the stock has fallen in 2022 as the broader stock market has declined, causing a decline in the value of the company’s underlying holdings company.
T. Rowe Price has also earned a reputation for having some of the best growth-focused mutual funds in the industry, which has served him well for years but hurt him in 2022 when growth stocks sold off due to rising interest rates. As a result, shares of T. Rowe Price are down about 47% from their 52-week high.
This creates an opportunity for new investors to buy the stock now at both an attractive valuation of 11.5 times earnings and a high yield. The flip side of this equation is that shares of T. Rowe Price are a good candidate for a rebound when the market recovers, which will lead to a rebound in assets under management.
Add this Dividend Aristocrat
For investors looking to build a stream of passive income, Dividend Aristocrats’ 25+ year commitment to dividend growth and reliability make them a great place to start. T. Rowe Price is an aristocrat through and through with 36 years of annual dividend growth, with the added bonus that it trades at a cheap valuation and should offer significant upside potential when the broader market recovers.
Michael Byrne holds positions within the T. Rowe Price Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.