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Hargreaves Lansdown (LSE:HL) Stocks have had some rough years, to say the least. In fact, as I write, the share price is 779 pence. That means the stock is down an astonishing 68% in just under four years!
However, the company is still the UK’s largest DIY investment platform. And the fall in the share price has pushed the dividend yield to a striking 5.2%. That is way above the FTSE 100 average.
So is this an opportunity for me to pick up some shares and increase my passive income? We’ll see.
A great year in passive income
The company is expected to pay a dividend of 41.1 pence per share for the current financial year. That means you would need 2,435 shares to receive £1,000 in annual passive income.
As it is, that would cost me around £18,950.
Next year, the dividend is expected to increase to 45.5 pence per share. So, assuming the payment is met, you would earn £1,107 in income without buying any more shares.
Of course, no payment is ever guaranteed. However, the company has a good track record when it comes to rewarding shareholders, including paying special dividends.
Why has the action had problems?
There have been a couple of issues that have weighed heavily on the stock price in recent years.
First, in 2019, the Woodford Equity Income Fund struggled and faced a wave of redemption requests. It eventually collapsed, leaving thousands of investors with their money trapped in the suspended fund.
Unfortunately, Hargreaves Lansdown had actively recommended this investment to clients on its platform. His reputation suffered damage over the issue, as well as a £100 million lawsuit.
Second, there are question marks over the long-term viability of your trading fees. The company currently charges up to £11.95 per trade.
Unlike, charles schwabone of the largest investment brokerages in the world, reduced commissions to zero in the US in 2019. This means users pay no trading fees or administration fees.
Many companies now offer a similar service, including Robin Hoodand free trade. And Charles Schwab is now extending its commission-free offer to UK investors.
None of this bodes well for Hargreaves Lansdown, as such fees contribute materially to its finances.
For example, for the six months to December 31, 2022, the firm reported £54.6 million in fee-based revenue from stock brokerage transactions. That equated to about 15.5% of his total revenue for the period.
And if we include platform fees, that’s more than half of a company’s revenue that may come under pressure from competition.
Will I buy the shares?
There are things I like about Hargreaves Lansdown. He has a solid balance sheet, with a net cash position. And its current customer retention rate of 92.1% suggests that the majority of its 1.77 million customers are currently satisfied with its service.
However, my fear is that the company will not be able to attract new customers, particularly young ones, in the next few years due to its business charges.
Also, existing customers could be tempted by lower platform fees elsewhere. That would be disastrous, since a significant revenue stream now comes from interest on cash deposits in its clients’ accounts.
This uncertainty is why I will look elsewhere for passive income.
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