I think Hargreaves Lansdown (LSE: HL) shares look attractive right now.
The FTSE 100 company operates as an investment platform provider for private investors. And it used to deliver fast growth in earnings year after year.
The success of the business was reflected in the share price. It rose from below 200p in the noughties to above 2,000p by 2018.
Faltering growth in earnings
Hargreaves Lansdown describes itself as the original disruptor in the sector. And through its efforts, it established the direct-to-consumer (D2C) market.
Now it’s the UK’s biggest provider with around £120bn of assets under administration and more than 1.7 million clients. But unlike when the business embarked on its mission in 1981, there’s now plenty of competition.
And one outcome of the situation is that growth rates have tailed off. Peak earnings occurred in 2021 before taking a dive last year. And City analysts expect earnings to remain below 2021’s record in the trading year to June 2024. Nevertheless, there’s a substantial recovery on the cards from the lower earnings of 2022.
But competition hasn’t been the only problem. Last year’s bear market for stocks has taken its toll. And that’s because client enthusiasm for buying shares and funds tends to wane under such conditions.
Meanwhile, the share price has been a casualty. Over the past year it’s plunged from just above 1,700p to today’s level around 940p. And the current valuation better represents the business as an ex-growth proposition.
For example, the forward-looking price-to-earnings ratio is running at just above 16 for the trading year to June 2024. And the dividend yield is expected to be a little over 4.7%.
A strong dividend story
Such a high dividend yield hasn’t occurred before. As far as I can remember, the company always had an elevated valuation. But not now.
However, despite volatile recent earnings, the multi-year dividend performance hasn’t missed a beat. The company has raised its dividend a little every year since at least 2017, and right through the pandemic. And analysts expect more advances ahead.
Meanwhile, a robust record of consistent cash flow backs up the dividend. And the business possesses defensive qualities that make it a potential enduring dividend investment. But looking at the stock in that way requires a mind shift from viewing it as a growth company.
Yet the firm hasn’t shelved its growth ambitions. Last year it said the UK wealth management industry is “once again at a key inflection point”. And the size of the market opportunity “has never been this significant”. So, naturally, the directors have set out their plans to capture more market share in the years ahead.
I don’t have any spare cash to invest right now. And there’s no guarantee that Hargreaves Lansdown will be successful in maintaining and growing its earnings into the future. After all, the competition could yet thwart the firm’s plans to grow.
Nevertheless, I reckon the stock could make a useful addition to my diversified, dividend-focused long-term portfolio. In that sense, it’s attractive to me. Although I wouldn’t describe it as a screaming buy for me today.
