T. Rowe Price Dividend Growth Is a Steady Long-Term Compounder

Key Morningstar Metrics for T. Rowe Price Dividend Growth

• Morningstar Medalist Rating: Gold
• Process Pillar: Above Average
• People Pillar: High
• Parent Pillar: High

Despite a challenging 2023 relative to its benchmark, T. Rowe Price Dividend Growth’s excellent manager, solid supporting cast, and time-tested approach make it a standout in the category.

This fund’s dividend focus can look out of step with market trends at times, but it has demonstrated an edge over longer periods. Manager Tom Huber focuses on financially healthy companies that can sustain above-average payout growth as he believes dividend growers offer outperformance with lower volatility. That approach paid off in 2022 as investors preferred steadier dividend-paying stocks as opposed to businesses burning cash to fuel revenue growth, but it hurt in 2023 as growth companies rebounded. The market was led by a group of non-dividend-paying mega-caps, which caused the fund to land in the lowest decile of large-blend Morningstar Category peers.

Yet, investors who have held on for longer periods have enjoyed better results, as Huber has masterfully steered this fund since March 2000. That tenure stands out among peers and lands him in the large-blend category’s most experienced decile. The fund has reliably offered downside protection in market pullbacks, with 2022 being no exception. Additionally, it’s been consistent—the fund has landed in the category’s top 6% ranked by risk-adjusted performance over the trailing 10-, 15-, and 20-year periods through May 2024.

Despite its defensive leanings, the fund has captured a respectable amount of upside. Huber builds a diversified portfolio of 95 to 120 stocks to reduce individual stock risk, but he also likes that it gives him more chances to hit on a big winner. As expected, the fund’s downside capture typically ranks among the lowest of dividend-oriented peers, but it’s still enjoyed at least 90% of the market’s upside on average during Huber’s tenure.

While steady dividend growers are at the core of this fund, Huber does have flexibility on the margins. He isn’t beholden to the passive competition’s (Vanguard Dividend Appreciation ETF VIG) strict policy of needing 10 years of consecutive dividend increases to be included, which would eliminate longtime healthcare holding Thermo Fisher Scientific TMO and turnaround play GE Aerospace GE, which have been strong stocks.

The fund’s time-tested approach and accomplished lead manager cement its status as a strong option for long-term investors.

T. Rowe Price Dividend Growth: Performance Highlights

Tom Huber has delivered strong risk-adjusted performance with below-average volatility during his tenure.

The fund’s focus on companies that are financially healthy enough to pay a dividend has led to a portfolio that’s been resilient in down markets. Indeed, it fared better than the S&P 500 prospectus benchmark and most large-blend category peers in most market corrections under Huber, including the early-2000s bear market, the late-2007 to early-2009 financial crisis, late 2018′s near bear market, and 2020′s coronavirus-driven market pullback. In 2022, the strategy lost 10.2%, which was less than the index’s 18.1% decline, and landed in the top decile of the category because of solid picks within consumer discretionary, financials, and technology.

The trade-off is that the fund can look sluggish in rising markets like 2017, 2020, 2021, and 2023; it landed in the category’s bottom half all four years. That hasn’t dented its long-term record, though. Since Huber’s April 2000 start, the no-load shares’ 8.6% annualized gain through May 2024 beat the S&P 500 benchmark’s 7.4% and the large-blend category norm’s 6.0%. The fund has also edged its toughest passive competition, Vanguard Dividend Appreciation VIG, by 30 annualized basis points since that exchange-traded fund’s April 2006 inception.

What’s more, the fund has been consistent: Its rolling five-year returns under Huber beat the category average more than 95% of the time and have rarely landed in the bottom third. The strategy has landed in the category’s top 6% ranked by risk-adjusted performance over the trailing 10-, 15-, and 20-year periods through May 2024.