Why FTSE 100 dividend growth stock Hargreaves Lansdown could be heading for 3,000p

Roland Head looks at the latest numbers from FTSE 100 (INDEXFTSE:UKX) high-flyer Hargreaves Lansdown plc (LON:HL).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’m looking at two companies that have both doubled in value over the last five years.

The first of these firms is investment management platform Hargreaves Lansdown (LSE: HL). This well-known fund supermarket logged net inflows from customers of £7.6bn over the 12 months to 30 June, a 10% increase on the 2016/17 financial year.

DIY investors also saw the market value of their investments rise. The end result was that total assets under administration rose by 16% to £91.6bn last year, an increase of £12.4bn.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Revenue also rose by 16%, to £447.5m, while pre-tax profit climbed 10% to £292.4m. Shareholders will receive a special dividend of 7.8p in addition to the ordinary dividend of 32.2p. This gives a total payout for the year of 40p, a 38% increase on last year, when the firm didn’t pay a special dividend.

Too late to buy?

Hargreaves Lansdown’s share price has doubled over the last five years. The stock now trades on 42 times earnings with a dividend yield of just 1.9%.

Normally, I’d say this was too expensive to buy. But this business is a bit special. Today’s results show an operating margin of 65%. With net cash of £343.5m in the bank, most of this exceptionally high profit margin feeds through to free cash flow for shareholders.

The only question in my mind is whether the company can maintain such a high level of profitability. Although a big market crash could prompt customers to withdraw their cash, I don’t see anything else on the horizon that’s likely to seriously threaten profits.

As a value investor, this isn’t my kind of stock. But I wouldn’t blame anyone who continued to buy the shares after today’s news.

This could be safer than houses

The housing market appears to be slowing. But one part of the property market that’s still growing fast is self-storage. One of the biggest operators in this sector is FTSE 250 firm Big Yellow Group (LSE: BYG).

Shares in this group have doubled since August 2013 and its financial performance hasn’t been far behind. Adjusted pre-tax profit has risen by 110% to £61.4m over the last five years, while the shareholder dividend has climbed 88% to 30.8p per share.

One reason for this strong growth is that occupancy has steadily improved. In March 2014, Big Yellow said that just 69.8% of its space was occupied. By the end of June 2018, that figure had risen to 83.4%, despite the group expanding steadily over this five-year period.

A slam-dunk buy?

Big Yellow’s high profile buildings act as giant advertising billboards. They’re modern, secure and usually located in urban areas with good transport connections.

One risk is that the company’s long-term commitment to its buildings could leave it with a lot of empty units if demand slumps.

Customers can usually move out quickly if they want to. However, the firm’s statistics show that many don’t, with 30% of customers having rented units for more than two years.

Analysts expect adjusted earnings to rise by 9% this year and by 8% in 2019/20. The stock isn’t cheap on 1.5 times tangible book value. But the forecast dividend yield of 3.5% is competitive and the firm’s large market share is attractive.

I think Big Yellow could keep climbing.

This AI stock is becoming a digital juggernaut in a £ 12.5 billion market!

🤖 Curious about the next big player in AI? 🤖

Our leading industry analysts have uncovered a trailblazing content platform that's revolutionising the industry with its unparalleled generative AI technology, setting new standards in creativity and efficiency.

Care for a sneak peek?

Trusted by global giants like Amazon, Disney, and Netflix, this innovative company is not just transforming digital media with AI-generated 3D content but is also capturing a significant share of a £12.7 billion market!

With a remarkable 62% gross margin, indicating exceptional profitability and operational efficiency, this company's growth trajectory positions it as a must-watch for savvy investors.

Best of all, we're offering exclusive access to the name of this game-changing stock, absolutely free!

Discover your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Close-up of British bank notes
Investing Articles

£20,000 in savings? Here’s how it could be used to target a £913 second income each month

Christopher Ruane walks through some practicalities of how an idle £20k could be the foundation for a sizeable long-term second…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 steps to building monthly passive income with a spare £10k

Christopher explains how an investor could aim to use some spare cash to start building regular passive income streams through…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Tesla’s struggling. Could NIO stock benefit?

NIO stock has moved up very slightly this year, while Tesla has crashed. Our writer considers whether it might be…

Read more »

Two employees sat at desk welcoming customer to a Tesla car showroom
Investing Articles

Could Tesla stock be a brilliant bargain in plain sight?

Christopher Ruane sees some things to like about Tesla, but as its vehicle revenues have gone into sharp decline, is…

Read more »

British coins and bank notes scattered on a surface
Investing Articles

3 cheap FTSE 250 stocks with big dividends to consider buying right now

The FTSE 250's loaded with so many big dividend yields it's hard to know where to start. These three have…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Up 585%, could Rolls-Royce shares still go higher?

Christopher Ruane likes the Rolls-Royce business but is not so convinced by the value its current share price offers him.…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

I reckon a bull market’s coming! Here’s what I’m buying for my Stocks and Shares ISA

Hoping to capitalise on what he believes is an undervalued UK stock market, our writer’s added more of this FTSE…

Read more »

piggy bank, searching with binoculars
Investing Articles

The UK stock market looks undervalued to me. Here’s 1 growth stock to consider for a SIPP

Our writer explains why he thinks the UK stock market’s currently in bargain territory, and identifies one share potentially worthy…

Read more »