Should I follow the crowd and buy the FTSE 100 stock for my portfolio? Let’s discuss.

Phoenix in a nutshell

Before I dive into the numbers here, it’s worth briefly looking at what this company does because it’s not a household name.

Phoenix Group is a savings and investment company with around 12m customers. Its goal is to be the UK’s leading retirement savings and income business.

Over the years, the company – which has been around for a long time now – has grown steadily through a series of mergers and acquisitions. Its brands today include Standard Life, SunLife, and Phoenix Wealth.

At the current share price of 553p, the company has a ​market cap of around £5.6bn. So, it’s one of the smaller businesses in the FTSE 100 index.

Favourable demographics

Looking at Phoenix Group today, there’s quite a bit to like about the business from an investment perspective, to my mind.

For a start, there’s a long-term growth story here due to demographics. With the UK’s population ageing rapidly, demand for retirement income solutions should be quite high in the years ahead.

Second, the company is generating a fair bit of cash right now. In the first half of 2024, it generated £647m in operating cash flow versus £543m a year earlier.

Third, the valuation seems reasonable. At present, the price-to-earnings (P/E) ratio is 12.3.

Finally, we have the huge dividend. For 2023, Phoenix Group paid out 52.65p per share to investors, which translates to a yield of 9.5% today.

Several risks

Digging deeper, however, I have some reservations about the stock.

The first is that dividend coverage (the ratio of earnings to dividends) is low. This year, analysts expect earnings per share of 45p and dividends per share of 54p, giving a ratio of 0.83. Generally speaking, a ratio under one is a warning that a payout isn’t sustainable.

Now, this may not be an issue since the company is generating plenty of cash as I mentioned earlier. This year, it expects to generate £1.4bn to £1.5bn in cash. This should be enough to cover the dividend, which only cost the company £520m last year. Still, I see the low dividend coverage ratio as a red flag.

A second issue is that in the first half of 2024, the company posted a large loss (£646m). This could be a short-term thing but it’s not ideal – I like to invest in consistently profitable businesses as they’re less risky.

Another factor to be aware of is that there’s quite a bit of debt on the balance sheet (£3.7bn in borrowings at the end of H1). This adds risk.

Finally, the stock doesn’t have a good track record in terms of its share price. Over the last 15 years, its share price hasn’t gone anywhere.

Should I buy?

Weighing this all up, I’ve decided that Phoenix Group shares are not for me.

There could be some big dividends here in the near term.

But given the debt pile, low dividend coverage, and lack of long-term share price gains, I think there are better dividend stocks to buy for my portfolio.

The post Should I follow Hargreaves Lansdown investors and buy high-yield dividend stock Phoenix Group? appeared first on The Motley Fool UK.

The stock’s been in fine form this year, rising 54.5% year to date and 37.3% over the last six months. So after hearing the news, some investors may be wondering if Hargreaves is a stock to consider buying. That’s what I’m here to answer.

Details of the deal

Before I do, let’s take a closer look at the details of the deal. As mentioned, the takeover values the firm at £5.4bn. That works out to a price of 1,140p per share, including 30 pence for its final dividend of 2024.

The price represents a 54.1% premium to the stock’s close on 11 April. That was the last day before the group’s initial approach to takeover the company.

The business is unanimously recommending shareholders support the takeover offer. In a release, Dan Olley, CEO of Hargreaves, said the business had “been reassured during process that the consortium are aligned with our mission”.

The consortium also released a statement, saying how Hargreaves “requires substantial investment in an extensive technology-led transformation to improve HL’s proposition and resilience, and to drive the next phase of HL’s growth and development”.

The firm was co-founded back in 1981 by Peter Hargreaves and Stephen Lansdown. Both have agreed to vote for the deal.

Half-year update

Alongside the takeover announcement, we also got its half-year results. The update had both positive and negative aspects.

Overall, Hargreaves saw net new business of £4.2bn, down from £4.8bn a year earlier. Despite that, it posted revenue of £764.9m, up 4% from the £735.1m recorded in the first half of 2023.

As such, assets under management rose 16% to £155.4bn. The business said this was “driven by net new business and positive market movement”.  

The firm now has just over 1.8m active clients and saw a 78,000 increase year over year. That said, profit before tax did fall 2% to £396.3m.

What next?

But where does that leave us potential investors? Well, its share price performance lately has been impressive. But driving that has been takeover talks. And while Hargreaves has many components I look for when investing in a business, such as strong brand recognition and a large customer base, I won’t be buying the stock today.

That’s because its share price has jumped to over 1,100p, just below the agreed takeover price.

As such, I’ll be steering well clear of picking up Hargreaves Lansdown shares any time soon. There’s little point in me buying the stock at the current price.

Regardless, I’ll keep hunting the FTSE 100 for my next bargain. I’m keen to gain more exposure to the financial services sector and see plenty of potential buying opportunities out there.

The post The Hargreaves Lansdown share price jumps as £5.4bn takeover is agreed appeared first on The Motley Fool UK.

Nonetheless, let’s take a close look at what the stockbroker reported.

Still growing

There’s been concern in recent years that Hargreaves wasn’t doing enough to attract new customers in an increasingly competitive market.

For Q4, the company reported 24,000 new clients in the period, up 85% year on year, with 1,882,000 active clients now on the platform. Growth, of any kind, is certainly positive.

However, I think it’s interesting to note that on 18 July, AJ Bell reported 25,000 new clients in the last quarter, taking the total number to 528,000. Despite being a third of the size, it’s growing faster.

Back to Hargreaves, Assets under Administration (AUA) closed the quarter at a record £155.3bn. That’s an outperformance with analysts expecting AUA to come in at £151.4bn at the end of the period.

This rising AUA was made possible by £1.6bn of net new business and rising asset prices across the quarter. For context, AJ Bell saw net inflows of £1.7bn in the quarter. 

What we didn’t find out

Hargreaves doesn’t tend to include financial information in its tradings updates, so we’ll have to wait for the annual report — 9 August — to get the lowdown on what this all means for the business — assuming it hasn’t been taken over by then.

However, broadly speaking, the above data’s positive. AUA reaching peak levels and improving dealing volumes — averaging 838,000 a month and up from 685,000 a year ago — suggests that revenue figures could be quite strong.

It’ll also be interesting to see the impact of the company’s share dealing incentive programme. New and existing customers were offered up to £100 of reimbursements on their trading fees during Q4. In my case, I was reimbursed for almost all the trades I made.

Moreover, the company made no mention of the potential takeover. CVC has tabled a £5.3bn offer to buy the company and the board has recommended investors accept it.

Some investors have suggested they’re unhappy with the low-ball bid and claim it’s unfair to shareholders.

The bottom line

Hargreaves Lansdown stuck to the numbers in its Q4 trading update, and the numbers weren’t bad at all. However, the takeover bid put a whole new spin on the company. Instead of investing for the company’s fundamentals, we’d be investing on the likelihood of the takeover going through.

Should the deal be accepted, shareholders will receive 1,140p per share. That’s around 2.5% above the current share price. This suggests a deal’s likely. It also means there’s very limited opportunity to benefit as a new investor here.

With regards to the metrics, the company’s now trading around 15 times forward earnings, which is probably a little expensive, given its pace of growth.

However, I’ve always argued that its dominant position in the market — with around 40% of total AUA — gives it options, and I believe it could benefit from a cheaper fee structure.

The post What do Hargreaves Lansdown results mean for the share price? appeared first on The Motley Fool UK.

Eyeing up takeover deals

The share price has rallied recently based on news that it could be bought out by private equity. This isn’t unusual, in fact over the past few months we’ve seen several FTSE firms get bought out. Hargreaves Lansdown received several bids from a private equity consortium over the past month.

The latest one that was rejected was at 985p per share. Yesterday (18 June) a new offer was made, at 1,140p. With the current share price at 1,125p, this makes sense. Even though the offer hasn’t been formally accepted yet, investors try and predict the future. Therefore, if the offer price is at 1,140p and the current share price was significantly lower than this, a sharp rally towards 1,140p would be seen.

This explains the surge in the stock in the recent past as the potential buyers think they’ve found a value stock. But the question now turns to whether there’s any investment potential for me right now.

Struggling to find good value

If we ignored the takeover bids, I’d be very sceptical about investing. The stock might be up 38% over the past year, but if we strip things back the business isn’t in a great state.

It has been losing market share to other FinTech firms in recent years. In the half-year results through to the end of 2023, net new business fell by 38% versus the same period the previous year. Profit before tax fell by 8%.

The firm is still the largest wealth platform in the UK and so does have a great foundation of existing and legacy clients. This base means that it will always have a steady revenue stream.

Further, the strategic refresh has been completed and the CEO is confident on the outlook going forward. He noted that “the business is built on strong foundations; a proud heritage, with a trusted brand and knowledgeable, client-focused colleagues.”

Yet all of this could be irrelevant. The management team has said it would recommend shareholders accept the latest offer. If this is the case, then there’s little point me buying the stock at the current price. Sure, I could make a small amount of quick cash, but that isn’t my style of investing.

Best to look elsewhere

In terms of risks, the takeover bid could still fall through. In this case, I’d expect a sharp move lower in the stock, removing all of the gains from the past month. This could further cause problems for the company, potentially making others stay away from considering a takeover of the business.

From my perspective, I don’t see the value in investing now. If the bid goes through, my gains are limited. If it doesn’t go through, the share price could tank. Either way, the risk-to-reward ratio doesn’t stack up.

The post What’s going on with the Hargreaves Lansdown share price? appeared first on The Motley Fool UK.

I think this might be the turning point that patient holders have been waiting for.

Bullish signs

Hailing “good momentum” as the last tax year came to an end, the £4bn-cap saw revenue climb 6% (to almost £200m) in the three months to 31 March.

Share dealing volumes were also up, with more clients looking to invest overseas. And who can really blame them given the rise (and rise) of big tech stocks across the pond?

A 48% jump in net new clients in the period compared to last year is another bullish sign. CEO Dan Olley attributed this to the introduction of new products such as ready-made pensions and its innovative Cash ISA. The latter allows savers to spread their £20,000 allowance across a number of banking partners rather than just one.

Record-breaker

All told, Hargreaves generated £1.6bn net new business in the quarter – the same as that achieved in FY23. It finished with assets under administration of just under £150bn – a record for the company.

Of course, all this counts for very little if the outlook’s poor. However, recent momentum’s continued into April, no doubt helped by clients wanting to make the most of their new ISA and SIPP allowances.

This bodes well for the next trading update, due on 19 July.

A canny buy?

There’s certainly an argument for thinking that now might be a great time to begin building a position in Hargreaves Lansdown.

Based on existing forecasts, the stock trades on a price-to-earnings (P/E) ratio of 12. That’s not screamingly cheap compared to other stocks in the financial sector but it does look reasonable relative to the whole UK market. And a drop in interest rates could push analysts to radically revise their projections as people have more wiggle room to save for retirement.

Big dividends

The passive income stream’s hard to ignore too. A 46p per share, expected total dividend becomes a yield of 5.6%. That’s large enough to get me interested. But it’s not so huge as to make me believe that a cut is definitely on the way.

Obviously, nothing’s guaranteed. A sudden and unexpected macroeconomic wobble could bring recent trading momentum to a screeching halt. And investors simply can’t ignore that the company’s value has tumbled 63% in the last five years.

It must also be remembered that Hargreaves faces significant and growing competition from rivals in this space. While still a lot higher than your average FTSE 100 juggernaut, this company’s operating margins and returns on capital have been falling over the last few years as it fights for new business.

Cautiously optimistic

Here at Fool UK, we’re interested in investing in quality stocks for the long term. Placing too much emphasis on one small period of trading’s usually asking for trouble.

However, today’s statement does make me cautiously optimistic on Hargreaves Lansdown and it’s ability to deliver a market-beating return going forward. In fact, it’s enough to make me consider investing here myself when cash becomes available.

The post The Hargreaves Lansdown share price jumps on ‘good momentum’. Is the worst over? appeared first on The Motley Fool UK.

Stocks and shares can be decent vehicles for generating income from their dividends.

It’s possible for many people to retire early after investing as little as £100 a week.

Compounding gains from dividends

The historical long-term compounded annual gain from shares in aggregate is often quoted as being in the ballpark of about 7% with dividends reinvested along the way.

So investing £100 a week and achieving an annualised gain like that could lead to an investment pot worth around £227k after 20 years and £531k after 30.

Nothing’s guaranteed, of course, but having that much money makes the possibility of earlier retirement worth considering for many.

But what stocks are best to buy? I’d go for a low-cost FTSE All-Share tracker fund to begin my investing journey. The index is backed by hundreds of businesses, many of which are well-established and paying chunky shareholder dividends.

Overall, the dividend yield of the FTSE All-Share index is running at about 3.9%. Capturing that with a tracker fund could lead to decent passive income.

Shooting for higher passive income

As my investment funds hopefully grow I’d aim for higher yields as well from buying the shares of individual companies. For example, some of my top stock picks for dividends include firms such as National Grid, Coca-Cola HBC, Legal & General and IG Group.

But one business that stands out for the consistency in its dividend record is Hargreaves Lansdown (LSE: HL).

The investing platform has raised its shareholder dividend every year since at least 2018, as this table shows:

If performance like that continues, shareholders can look forward to a growing stream of passive income.

However, Hargreaves Lansdown used to have a growth valuation, but lately the stock’s fallen out of favour with investors and the earnings multiple’s shrunk. The chart tells the story:

Now, with the share price near 753p (25 April), the forward-looking dividend yield for 2025 is just over 6%. That’s a chunky potential income for shareholders, but the lower valuation likely means investors are worried about something.

A competitive market

The main risk seems to be the growing number of competitors such as AJ Bell, Interactive Investor and many others. During its fast-growth phase, Hargreaves Lansdown enjoyed strong product and service pricing. Maybe cash flow and profit margins will decline in the coming years as the competition bites. We could even see cuts to the dividend.

However, the company’s been diversifying its product range and the directors were optimistic in the recent half-year results report. The company has a clear strategic ambition, they said, and early delivery provides “strong potential for future growth”.

For the time being, I’d be inclined to give Hargreaves Lansdown the benefit of the doubt. Therefore, I’d consider adding some of the shares to a diversified portfolio focused on passive income for earlier retirement.

The post How much should I put in stocks to give up work and live off passive income? appeared first on The Motley Fool UK.

Is the gloom of the past few years finally lifting, and are the days of cheap UK shares numbered?

Sentiment is clearly improving. And weak sentiment is what has kept Footsie share prices so low over the past five years.

Interest rates are playing a big part. Why risk money on the UK stock market in tough times when we can get a guaranteed 5% from a Cash ISA?

A zero-risk cash investment has its attractions. But rates can’t stay that high once the Bank of England starts its cuts.

Confidence boost

Head of investment analysis and research at Hargreaves Lansdown (LSE: HL.), Emma Wall, tells us: “Investor confidence has ticked up once again April. Confidence in all global sectors has risen, but particularly in the domestic stock market — where clients have seen an eight-point surge of optimism.“

I never knew there was a way to quantify optimism. But anything that suggests people are 8% happier is good with me.

She also points out: “The UK market is currently on a considerable discount to developed market peers of around 40%, but features high quality companies with global revenues, good cash reserves, and in many cases well-covered, attractive dividends.”

UK shares still cheap

That’s key for me. The FTSE 100 is more lowly valued than, for example, the S&P 500. It might make sense if it only held UK-centric stocks, while the S&P was home to US-centric ones.

But that’s just not the case.

Most of the companies at home on London’s top index are every bit as global as most of those listed in the US. Only they’re cheaper. And they pay better dividends.

Shell, for example, is on a forecast price-to-earnings (P/E) ratio of under nine. For Exxon Mobil, the figure is above 13. Does Shell really deserve to be valued a third lower than Exxon?

What to buy?

I’m looking at Hargreaves Lansdown stock itself right now. I’d rate it as be a barometer of market sentiment, but it does seem to overshoot.

And we’re looking at a 67% fall after the past five years of pessimism.

Before the Covid crash, Hargreaves Lansdown was trading on a P/E of over 35. Today, forecasts put it at only 12.5 for this year. And there’s a predicted dividend yield of 5.7%.

Both would be heading in the right directions if forecasts prove accurate — the P/E down, and the yield up.

Cyclical value

We’re clearly looking at a cyclical business here, based on how the stock market goes. And I could see more volatility in the next couple of years.

But over the decades, the FTSE has had far more good years than bad years.

So, I do think investment services firms like Hargreaves Lansdown and AJ Bell could be good ones for those of us who see long-term stock market optimism.

And I reckon we’re nowhere near the end of cheap UK shares — and we very possibly never will be.

The post As the FTSE 100 hits an all-time high, are the days of cheap shares coming to an end? appeared first on The Motley Fool UK.

In early 2023, France overtook the UK by total exchange market capitalisation and the gap has widened since. The UK is now the seventh largest market in the world, after the US, China, Japan, Hong Kong, India and France.

But while many UK companies consider jumping ship for US shores, one in particular is finding its fortunes at home.

Pricey but with solid financials

Intermediate Capital Group (LSE:ICP) is a private equity investment firm specialising in mezzanine finance and leveraged credit. It entered the FTSE 100 in October last year following months of strong growth, taking over a spot from the financial services firm Hargreaves Lansdown (LSE:HL.).

With a £5.9bn market cap and assets that outweigh liabilities, the company appears to be in a good position. It holds £2.1bn in shareholder equity with future return on equity (ROE) forecast to be 19.2% in three years — comparatively low but still higher than the industry average of 6.9%.

The rising share price is now trading at 12.5 times earnings, somewhat lower than the industry average of 16.8. Despite the recent price appreciation it’s still estimated to be undervalued by 25% using a discounted cash flow model. This is reflected in a price/earnings-to-growth (PEG) ratio of 0.25.

More room for growth?

Despite the strong performance so far, future forecasts for ICP aren’t great. The average 12-month price increase of analysts evaluating the stock is only 2.3%. This is not unusual for a stock that’s grown rapidly in a short time but I think it has more potential than they give it credit for. 

You see, ICP not only funds IPOs but makes a lot of its money by funding acquisitions and buyouts. With the UK economy faltering, US firms are circling British companies like vultures. ICP stands to benefit if it can get involved in financing this wave of new acquisitions.

Competitive comparisons

Hargreaves Lansdown isn’t a direct competitor of ICP as it provides a different suite of financial services. However, since the two swapped their FTSE places last year, it makes for an interesting comparison.

Hargreaves Lansdown certainly hasn’t enjoyed the same recent price growth — it’s down 7.2% over the past year and has been in decline since 2019.

But the low price could provide a better short-term investment opportunity. 

While earnings and revenue aren’t predicted to grow significantly, its ROE is estimated at 33.2% in three years. Not only does Hargreaves Lansdown have a lower P/E ratio of 11.5 but it pays higher dividends. At 5.7%, its yield is almost double that of ICP and future cash flow estimates indicate it’s undervalued by 33.8%.

But until Hargreaves Lansdown can compete with lower-priced competitors like AJ Bell and Interactive Investor, price recovery could be limited. Short-sellers remain confident that the price could fall further.

I’m not looking to add more finance-related shares to my portfolio right now. However, if I had to choose between the two, I’d say ICP would be the better option as a reliable long-term investment for me.

The post Up 72% in a year! This UK company is defying a stock market in decline appeared first on The Motley Fool UK.

Clearly, they’re doing something right. So let’s take a closer look at how the compounding process has enabled this success. And, more importantly, let’s explore how investors today can achieve the same status later down the line.

Investing for the long run

The data provided by Hargreaves reveals a consistent theme. The majority of SIPP millionaires achieved their wealth through long-term investments in quality businesses rather than get-rich-quick-style penny stocks. Or at least, that’s what the median age of 62 would suggest.

By consistently drip feeding capital into a portfolio each month, compounding can work its magic. And over long periods that can add up to a substantial sum, even when sticking to passive index funds.

For example, let’s say an investor is in the basic rate income tax bracket, paying 20%. Thanks to the tax relief benefits of the SIPP, a £500 monthly investment would automatically be topped up to £625.

Meanwhile, the FTSE 250 has historically delivered an average annualised return of 11% since its inception. And assuming this rate of return continues for the next 35 years, compounding would push the pension pot to be worth just over £3m!

What’s more, this figure could grow even higher if investors decided to pick stocks directly rather than relying on a passive investing approach.

Risk and return

As fantastic as it would be to have £3m in the bank for retirement, this figure needs to be taken with a healthy dose of scepticism. For starters, there’s no guarantee the FTSE 250 will continue to deliver its historical average returns. And even if it does, all it takes is one badly-timed market crash or correction to derail a portfolio, albeit likely temporarily.

This is where picking stocks can provide a solution. There’s no denying it comes with a significantly higher level of risk and volatility. However, sucessfully identifying winning businesses to buy and hold for the long run can drastically improve portfolio returns. And an investor able to reap an average annualised gain of 13% may end up sitting on a pension pot worth over £5m!

Of course, the question now becomes, which stocks should investors buy? Hargreaves Lansdown is certainly a popular pick at the moment, especially considering the financial services group has seen an uptick in client accounts.

The introduction of new products like cash savings ISAs has helped bring in 20,000 new customers, elevating the group’s assets under management by 6% to £142bn.

On the other hand, the firm is also at the mercy of the macroeconomic landscape, as weak sentiment puts a damper on trading activities on which the group collects commissions.

Like any investment, there are always risks as well as rewards. And it’s up to investors to decide whether it’s a move worth taking, or looking elsewhere for opportunities.

The post How I’d target a £3m portfolio with compound interest in a SIPP appeared first on The Motley Fool UK.

Already this year, unemployment has fallen, inflation is cooling, and rates cuts are on the horizon. The economy is projected to rise as well. 

And yet the FTSE 100 and FTSE 250 have both treaded water in January and February, so I’m hopeful there are bargain UK shares to be found before a strong 2024 performance. 

Here are three at the top of my watchlist. 

Diversified Energy

When most people see a 15% yield or more, they run for cover before the dividend gets slashed.

And yet, Diversified Energy (LSE: DEC) – an Alabama-based oil and gas firm – offer a 29.16% dividend yield along with the cash flows to sustain payments in future years. 

Of course, there’s no such thing as a free lunch and the company faces serious challenge to its existence. 

Its business model of buying aged wells and squeezing them dry has drawn the ire of the Democrats, who accuse the company of not cleaning up properly. 

The threat of fines or higher spending to retire wells has sent the market value to $563m while net income in the first half was $631m.

The shares are down 23% year to date and I’m keeping an eye on a possible turning point. 

BAE Systems

The spring budget was eye-catching for various reasons, but one overlooked detail was what Grant Shapps called “the largest defence budget in history” as spending rose £1.4bn to £55.6bn. 

The Defence secretary is pursuing a 2.5% GDP spend on defence “as soon as possible” and his comment came hot on the heels of his German counterpart calling for up to 3.5%. 

Of course, this is hardly a desirable state of affairs, but I think we’re waking up to the reality that governments can’t shirk military spending when leaders like Putin exist.

As the UK’s largest defence firm and the only one on the FTSE 100, BAE Systems (LSE: BA.) will likely be at the heart of much of the outlay.

BAE has a record order book, the shares are up 12% in 2024 already, and I reckon there’s plenty more growth in store. 

As for risks, BAE trades at 21 times earnings, which sounds pricey at close to double the FTSE 100 average. 

Overall though, I’m happy to hold the shares and may buy more.

Hargreaves Lansdown

One of the headlines of the budget was the introduction of the British ISA – a further £5,000 tax-free investing allowance so long as the money is ploughed into UK shares. 

Hargreaves Lansdown (LE: HL) shares jumped a couple of percent on the news, perhaps due to the British ISA’s possible impact on its investing platform.

Will it have much effect? Well, the British ISA only helps those stuck investing just £20k a year rather than £25k. I’m not sure that’s too many of us. 

But more broadly, Brits are investing now more than ever. An estimated 5m UK citizens started investing in the last year, bringing the total to 27m. 

Hargreaves Lansdown shares are up 5% for the year and trade at 12 times earnings. The shares might be my next purchase.

The post 3 UK shares to buy for a strong 2024? appeared first on The Motley Fool UK.