6.5% yields! Here’s the dividend forecast for Hargreaves Lansdown shares through to 2025

This FTSE 100 stock offers dividend yields far above the average for UK blue-chip shares. Is it currently too cheap for me to miss?

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The Hargreaves Lansdown (LSE:HL.) share price has slumped 14% in 2023. It’s a decline that means the company’s dividend yields have reached sky-high levels, based on current City forecasts.

For this financial year (to June 2024) the yield on Hargreaves Lansdown shares sits at an enormous 6.5%. This is far ahead of the FTSE 100’s forward average of 3.8%.

Things get even better for fiscal 2025 too. For then, the dividend yield marches to 6.6%.

But how realistic are current dividend forecasts? And should I buy the financial services giant for my UK shares portfolio?

Dividend growth expected

The total dividends shelled out by Hargreaves Lansdown has been up and down in recent years due to variances in the level of special payouts. But the ordinary dividends the company has paid out have continued to grow. Last year, they increased 4.5% year on year to 41.5p per share.

City analysts aren’t expecting any more supplementary one-off payments to be coming down the line this year and next. However, they are tipping further solid dividend growth, to 45.7p and 48.7p per share in fiscal 2024 and 2025 respectively. And so the Footsie firm still offers those enormous yields.

The pros

As I mentioned, Hargreaves Lansdown’s share price has slumped this year as tough economic conditions have damaged new business. Yet the company’s robustness in the face of these challenges suggests heavy selling of its shares has been unwarranted.

Net new business at the firm dipped 14% between July and September, to £600m, it announced this week. But revenues rose 13% to £183.8m, thanks to a steady stream of Bank of England rate rises.

The subsequent boost to its net interest margin (NIM) more than offset the impact of weaker share dealing volumes. Monthly, these volumes dropped to 634,000 from 700,000 over the period.

Hargreaves Lansdown is an industry leader and has exceptional brand recognition. It grew customer numbers by a further 8,000 in the September quarter, to 1.81m, and it has a great chance to continue growing business as the UK’s elderly population ages and people become more active in terms of retirement planning.

The cons

One worry I have is that the scale of competition is ratcheting higher. Hargreaves Lansdown has rapidly grown its market share in Britain’s savings and investments market, and its direct-to-consumer platform now commands a near-42% share. But cheaper rivals such as Trading 212 and eToro are becoming increasingly popular.

Investors also need to be aware that predicted dividends for the next two years are covered just 1.3 times by anticipated earnings. This is well below the minimum safety benchmark of 2 times that investors search for. So if profits get blown off course, so could dividends.

The verdict

That said, at current prices I think Hargreaves Lansdown shares could be too cheap to miss. Today, it carries those huge dividend yields and trades on a forward price-to-earnings (P/E) ratio of just 10.8 times.

I’ll be looking to open a position in the company when I next have cash to invest.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown Plc. 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.

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