Before You Buy T. Rowe Price: Here's a Dividend Stock I'd Buy First

T. Rowe Price is a highly appealing stock option for those seeking dividends. This company, dedicated to managing a wide range of investments under the T. Rowe Price umbrella, possesses all the qualities one desires from a top-notch dividend stock. It holds a prominent position in the market, overseeing a significantly large amount of assets, totaling $1.4 trillion. Moreover, it has successfully increased its dividend payout for an impressive 36 consecutive years. This feat places T. Rowe Price among a select group of stocks known as Dividend Kings, a distinction held by only a few dozen companies with even lengthier streaks of dividend growth.

The reason behind the company's dedication to paying dividends can be attributed to its remarkable fiscal management. With zero long-term obligations and ample cash reserves, the company remains capable of upholding and even boosting its dividend payouts, even during challenging economic circumstances.

You absolutely can't make a bad decision by including T. Rowe Price in your investment portfolio as a dividend stock. However, in my opinion, there is another stock in the same industry that seems to be a superior choice: BlackRock (BLK -0.57%). Now, let's compare these two stocks closely.

When examining the two dividends, it becomes evident that T. Rowe Price's dividend is superior. However, there are additional elements to consider, which we will delve into.

T. Rowe Price, currently priced at approximately $114 per share, recently announced a dividend of $1.22 for the third quarter, maintaining the same amount as the previous two quarters. The company distributes this dividend with a generous yield of 4.32% per share, surpassing the usual average. Remarkably, this marks the 36th consecutive year of dividend growth for T. Rowe Price.

I simply cannot envision a situation in the coming months where T. Rowe does not raise its dividend. This is because the company's balance sheet is in excellent condition and it has a surplus of cash. During the first six months of the year, T. Rowe increased its cash reserves from $1.7 billion to $2.2 billion. Additionally, it generated $2 billion in free cash flow.

A major worry is the proportion of earnings distributed as dividends, which has risen to 66%. Although this figure may seem high, it is a result of the asset manager facing challenging periods during the past couple of years due to the declining market. As market conditions stabilize, we expect the payout ratio to decrease. The upcoming months are unlikely to mirror the initial half of the year, but even if there is a decline, T. Rowe Price possesses enough funds to sustain its dividends.

BlackRock, a significant player in the investment industry with approximately $9.4 trillion in assets that it manages, poses strong competition to T. Rowe Price. While T. Rowe Price experienced a reduction in funds flowing into its equity investment offerings, BlackRock, which oversees the iShares fund family, observed substantial growth in funds flowing into its equity investments. This growth can be largely attributed to its extensive collection of exchange-traded funds (ETFs). Specifically, its equity ETFs received $70 billion in additional funds, a significant increase from the $48 billion obtained in the previous year. Additionally, BlackRock saw a surge in inflows from professional investors in the quarter, amounting to $86 billion through its actively managed portfolios. This figure is significantly higher than the $5 billion witnessed in the second quarter of 2022.

BlackRock, currently priced at approximately $696 per share, announced a $5 payout in the third quarter, which matches the previous two quarters. This marks the thirteenth consecutive year that BlackRock has elevated its dividend. The dividend yield stands at 2.9%, while the payout ratio hovers at around 56%.

When comparing these figures to T. Rowe Price, it is evident that the dividend is lesser, the duration of consecutive yearly increments is shorter, and the payout ratio is only marginally improved. However, here's why I would choose BlackRock instead of T. Rowe Price.

Get More Value For Your Money

It is evident that you will receive a significant payout from either of these stocks. T. Rowe Price possesses a solid financial position to withstand any adverse situations, while BlackRock holds a powerful position in its industry and has the capacity, scope, and range of assets to handle economic declines.

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The major contrast between the two lies in the fact that BlackRock's stocks have consistently outperformed T. Rowe Price's stocks in the long run, whether we consider a timeframe of five, 10, or even 20 years. Specifically, for a period of 10 years ending on Aug. 10, BlackRock's stocks have generated an average annual return of 9.5%, while T. Rowe Price's stocks have yielded a lower return of 4.3%. Similarly, over the past 20 years, BlackRock's stocks have delivered a solid average annual return of 14.6%, compared to T. Rowe Price's return of 9%.

Furthermore, considering its prominent position as the frontrunner in the rapidly expanding sector of ETFs, the continuation of this trend seems highly probable. ETFs have consistently experienced an average annual growth of 16% in terms of their assets since 2016, and this growth rate is anticipated to surpass and outperform expectations in the upcoming five years due to the introduction of actively managed ETFs.

BlackRock is expected to achieve excellent performance in the coming years, thanks to ETFs and the upcoming bullish market. On the other hand, T. Rowe Price has been slow in entering the ETF market, only recently introducing their first set of active ETFs. Hence, although they might capture some market share, they still hold a relatively insignificant position within this industry.

In addition to providing a remarkable and consistent payout, BlackRock is expected to sustain impressive long-term performance that surpasses the market average.

Dave Kovaleski does not own any shares in the stocks mentioned. The Motley Fool suggests T. Rowe Price Group. The Motley Fool has a policy of full disclosure.