Asset managers like T. Rowe have low variable costs. As a result, higher revenues, driven primarily by increasing assets under management, allow for margin expansion and attractive earnings growth rates. Assets under management grow in two basic ways: increased contributions and higher underlying asset values. While asset values are finicky, the trend is upward over the long-term.
On the contribution side, T. Rowe Price’s strong past performance is a key selling point and could attract customers going forward. In addition, T. Rowe has another EPS growth lever in the way of share repurchases.
TROW stock currently yields 4.3%.