Is T. Rowe Price Dividend Growth Fund (PRDGX) a Strong Mutual Fund Pick Right Now?

Question

There are plenty of choices in the Large Cap Blend category, but where should you start your research? Well, one fund that may not be worth investigating is T. Rowe Price Dividend Growth Fund (PRDGX). PRDGX carries a Zacks Mutual Fund Rank of 4 (Sell), which is based on various forecasting factors like size, cost, and past performance.

Objective

We note that PRDGX is a Large Cap Blend option, an area loaded with different options. More often than not, Large Cap Blend mutual funds invest in companies with a market cap of over $10 billion. Buying stakes in bigger companies offer these funds more stability, and are well-suited for investors with a 'buy and hold' mindset. Additionally, blended funds mix large, more established firms into their portfolios, giving investors exposure to value and growth opportunities.

History of Fund/Manager

T. Rowe Price is based in Baltimore, MD, and is the manager of PRDGX. The T. Rowe Price Dividend Growth Fund made its debut in December of 1992 and PRDGX has managed to accumulate roughly $12.41 billion in assets, as of the most recently available information. Thomas J. Huber is the fund's current manager and has held that role since March of 2000.

Performance

Obviously, what investors are looking for in these funds is strong performance relative to their peers. This fund in particular has delivered a 5-year annualized total return of 12.47%, and is in the bottom third among its category peers. Investors who prefer analyzing shorter time frames should look at its 3-year annualized total return of 11.12%, which places it in the bottom third during this time-frame.

It is important to note that the product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Total returns do not reflect the fund's [%] sale charge. If sales charges were included, total returns would have been lower.

When looking at a fund's performance, it is also important to note the standard deviation of the returns. The lower the standard deviation, the less volatility the fund experiences. The standard deviation of PRDGX over the past three years is 13.46% compared to the category average of 14.55%. Looking at the past 5 years, the fund's standard deviation is 14.42% compared to the category average of 14.09%. This makes the fund more volatile than its peers over the past half-decade.

Risk Factors

The fund has a 5-year beta of 0.85, so investors should note that it is hypothetically less volatile than the market at large. Because alpha represents a portfolio's performance on a risk-adjusted basis relative to a benchmark, which is the S&P 500 in this case, one should pay attention to this metric as well. PRDGX has generated a negative alpha over the past five years of -1.22, demonstrating that managers in this portfolio find it difficult to pick securities that generate better-than-benchmark returns.

Story Continues## Holdings

Examining the equity holdings of a mutual fund is also a valuable exercise. This can show us how the manager is applying their stated methodology, as well as if there are any inherent biases in their approach. For this particular fund, the focus is mostly on equities that are traded in the United States.

Currently, this mutual fund is holding 77.41% in stocks, which have an average market capitalization of $353.78 billion. The fund has the heaviest exposure to the following market sectors:

Technology
Finance
Industrial Cyclical

With turnover at about 10%, this fund is making fewer trades than its comparable peers.

Expenses

As competition heats up in the mutual fund market, costs become increasingly important. Compared to its otherwise identical counterpart, a low-cost product will be an outperformer, all other things being equal. Thus, taking a closer look at cost-related metrics is vital for investors. In terms of fees, PRDGX is a no load fund. It has an expense ratio of 0.64% compared to the category average of 0.89%. From a cost perspective, PRDGX is actually cheaper than its peers.

Investors should also note that the minimum initial investment for the product is $2,500 and that each subsequent investment needs to be at $100.

Fees charged by investment advisors have not been taken into consideration. Returns would be less if those were included.

Bottom Line

Overall, T. Rowe Price Dividend Growth Fund ( PRDGX ) has a low Zacks Mutual Fund rank, and in conjunction with its comparatively weak performance, average downside risk, and lower fees, T. Rowe Price Dividend Growth Fund ( PRDGX ) looks like a somewhat weak choice for investors right now.

This could just be the start of your research on PRDGX in the Large Cap Blend category. Consider going to www.zacks.com/funds/mutual-funds for additional information about this fund, and all the others that we rank as well for additional information. Zacks provides a full suite of tools to help you analyze your portfolio - both funds and stocks - in the most efficient way possible.

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This article originally published on Zacks Investment Research (zacks.com).

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