With a dividend yield of 4.81%, higher than the FTSE 100 average of 3.78%, Hargreaves Lansdown (LSE:HL) seems like a tempting option.
Indeed, the company has reported some positive financial results recently. I’m also a customer, having set up my Stocks and Shares ISA on its platform.
So, is Hargreaves Lansdown a red-hot buy for my portfolio right now?
Above average, but unexceptional
Hargreaves Lansdown’s dividend yield is, on closer inspection, not much to get excited about in 2023.
Nowadays, I can easily find savings accounts offering interest at 5% and above – without any of the risk involved in owning shares.
Meanwhile, other FTSE 100 stocks are offering far higher yields: M&G at 10.6%, Phoenix Group at 9.9%, Vodafone at 9.6%, and British American Tobacco at 9.2%.
Clearly, the dividend alone isn’t enough to make me buy shares in Hargreaves Lansdown. But what about the business performance?
Success in turbulent times
In the three months ended March 31 2023, the company reported net new business of £1.6bn, a 14% increase compared to Q3. Net client growth and assets under administration also increased.
These figures demonstrate the company’s ability to generate growth and attract clients, even amid fears of a market crash and a cost-of-living squeeze.
But the wider market context may get the better of Hargreaves Lansdown eventually.
Intense competition for brokers
The investment industry is evolving rapidly, and Hargreaves Lansdown faces significant obstacles.
For retail investors, the social media-fuelled meme stock frenzy of 2021 is now a distant memory.
As stock prices slide amid geopolitical tensions and rampant inflation, many investors who experienced substantial gains during the pandemic are now nursing losses.
Furthermore, intense competition and the race to zero on trading fees are worrying developments for Hargreaves Lansdown, which charges a share-dealing fee of between £5.95 and £11.95.
If I were a small-fry investor looking to buy just £100 of, say, Amazon stock, such a fee would eat up 10% of my capital right out of the starting gate. Ouch.
Alternatives like Trading 212 and Freetrade, on the other hand, charge no dealing fees, although admittedly they offer a more limited selection of shares, funds and ETFs.
Am I buying?
The market landscape, characterised by uncertainty, falling fees, and intense competition, raises concerns for me.
I think I can find companies that pay higher dividend yields and with much better market fundamentals supporting their long-term growth.
For example, Rio Tinto offers a dividend yield of 6% while being a leading producer of metals essential for decarbonisation technologies.
Or Primary Health Properties, in which I own shares, pays a dividend yield of 7%. The UK’s healthcare needs are only going to grow as the population ages.
In short, while I use Hargreaves Lansdown as my broker, I don’t want to own shares in the company.
Zero-fee alternatives and a gloomy economic backdrop spell trouble for it. Despite the firm’s remarkable resilience to those headwinds, I wouldn’t stake my money on that performance continuing in a way that would be rewarding enough for me.
