T. Rowe Price Group, Inc. (NASDAQ:TROW) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of March to $1.24. This will take the annual payment to 4.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for T. Rowe Price Group

T. Rowe Price Group's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment was quite easily covered by earnings, but it made up 122% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

EPS is set to fall by 5.6% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 75%, which we are pretty comfortable with and we think is feasible on an earnings basis.

T. Rowe Price Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.52 in 2014 to the most recent total annual payment of $4.96. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. T. Rowe Price Group hasn't seen much change in its earnings per share over the last five years. Growth of 1.0% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On T. Rowe Price Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think T. Rowe Price Group's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for T. Rowe Price Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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