Why FTSE 100 dividend growth stock Hargreaves Lansdown could be heading for 3,000p
Today I'm looking at two companies that have both doubled in value over the last five years.
The first of these firms is investment management platform Hargreaves Lansdown (LSE: HL). This well-known fund supermarket logged net inflows from customers of £7.6bn over the 12 months to 30 June, a 10% increase on the 2016/17 financial year.
DIY investors also saw the market value of their investments rise. The end result was that total assets under administration rose by 16% to £91.6bn last year, an increase of £12.4bn.
Revenue also rose by 16%, to £447.5m, while pre-tax profit climbed 10% to £292.4m. Shareholders will receive a special dividend of 7.8p in addition to the ordinary dividend of 32.2p. This gives a total payout for the year of 40p, a 38% increase on last year, when the firm didn't pay a special dividend.
Too late to buy?
Hargreaves Lansdown's share price has doubled over the last five years. The stock now trades on 42 times earnings with a dividend yield of just 1.9%.
Normally, I'd say this was too expensive to buy. But this business is a bit special. Today's results show an operating margin of 65%. With net cash of £343.5m in the bank, most of this exceptionally high profit margin feeds through to free cash flow for shareholders.
The only question in my mind is whether the company can maintain such a high level of profitability. Although a big market crash could prompt customers to withdraw their cash, I don't see anything else on the horizon that's likely to seriously threaten profits.
As a value investor, this isn't my kind of stock. But I wouldn't blame anyone who continued to buy the shares after today's news.
This could be safer than houses
The housing market appears to be slowing. But one part of the property market that's still growing fast is self-storage. One of the biggest operators in this sector is FTSE 250 firm Big Yellow Group (LSE: BYG).
Shares in this group have doubled since August 2013 and its financial performance hasn't been far behind. Adjusted pre-tax profit has risen by 110% to £61.4m over the last five years, while the shareholder dividend has climbed 88% to 30.8p per share.
One reason for this strong growth is that occupancy has steadily improved. In March 2014, Big Yellow said that just 69.8% of its space was occupied. By the end of June 2018, that figure had risen to 83.4%, despite the group expanding steadily over this five-year period.
A slam-dunk buy?
Big Yellow's high profile buildings act as giant advertising billboards. They're modern, secure and usually located in urban areas with good transport connections.
One risk is that the company's long-term commitment to its buildings could leave it with a lot of empty units if demand slumps.
Customers can usually move out quickly if they want to. However, the firm's statistics show that many don't, with 30% of customers having rented units for more than two years.
Analysts expect adjusted earnings to rise by 9% this year and by 8% in 2019/20. The stock isn't cheap on 1.5 times tangible book value. But the forecast dividend yield of 3.5% is competitive and the firm's large market share is attractive.
I think Big Yellow could keep climbing.
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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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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