Hargreaves Lansdown: An FTSE 100 Dividend-Raising Star

LONDON -- In an outcome that's tough for investors to swallow, the FTSE 100 (INDEX: ^FTSE  ) has failed to deliver a rising dividend payout over the last few years.

Just look at the iShares FTSE 100 ETF, for example. This is an exchange-traded fund that tracks the benchmark index, and we can see that the aggregate payment from Britain's top 100 companies has yet to regain its prerecession peak:

 

2007

2008

2009

2010

2011

Dividend per Share (pence)

19.1

20.2

17.1

16.2

18.1

To put it bluntly, that flat-out stinks. But some companies within London's premier index have delivered increasing dividends, despite these austere conditions, and this series aims to seek them out. One such name is Hargreaves Lansdown (LSE: HL.L  ) .

The big question is whether Hargreaves's dividend can continue to outperform its index. Let's put the firm under scrutiny and test its financial mettle.

The company describes itself as a leading provider of investment management products and services to private investors in the U.K. The business has grown rapidly since its establishment in 1981 by eponymous founders Peter Hargreaves and Stephen Lansdown. Today, with the shares at 572 pence, the market cap is 2.71 billion pounds. This table summarizes Hargreaves' recent financial record:

 

2007

2008

2009

2010

2011

Revenue (millions of pounds)

99

120

133

159

208

Net Cash From Operations (millions of pounds)

8

35

57

72

84

Earnings per Share (pence)

3.6

9

11.1

13.1

19.6

Dividend per Share (pence)

3

5.49

7.29

8.58

12.91

So the dividend has increased by 330% during the last five years -- equivalent, roughly, to a 44% compound annual growth rate.

Hargreaves Landsdown provides services and products to private investors, whether they are making their own investment decisions or looking for an advisory or discretionary service. The company's leading Vantage service is a direct-to-private investor fund supermarket and wrap platform offering clients the ability to hold and manage investments -- including unit trusts, OEICs, equities, bonds, investment trusts, and cash -- in one place, irrespective of the tax vehicle.

Business has been brisk, and Hargreaves seems to be riding a rising trend toward individual decision-making among investors. As of March 31, assets around 26 billion pounds were managed for investors, making the firm the U.K.'s largest fund supermarket and wrap platform.

The Bristol-based company has grown rapidly with its market and managed to turn that growth into a highly cash-generative business -- ideal for sustaining a progressive dividend policy.

Hargreaves Lansdown's dividend growth score
I analyze four different features of a company to judge whether its dividend can continue to rise:

  1. Dividend cover: Free cash flow covered the last payout more than twice. Score: 4/5
  2. Cash/debt position: There was net cash on the balance sheet at the last count. Score: 5/5
  3. Cash flow: Robust cash flow supports profits, with both trending up. Score: 5/5
  4. Outlook: Although the directors are cautious, recent trading has been good. Score: 4/5

Overall, I score Hargreaves Lansdown 18 out of 20, which encourages me to believe the firm's dividend can continue to outpace dividends from the FTSE 100.

Foolish summary
With zero debt, strong cash flow, and good recent trading, the outlook for the dividend is promising. Right now, the forecast full-year dividend is 24.83 pence per share, which supports a possible income of 4.3%. That looks attractive to me.

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Further investment opportunities:

Kevin does not own any shares mentioned in this article. The Motley Fool owns shares in Hargreaves Lansdown. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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