Here’s how many Hargreaves Lansdown shares I’d need for £1,000 a year in passive income

Hargreaves Lansdowne (LSE: HL) shares have had a rocky few years, to say the least. In fact, as I write, the share price is 779p. That means the stock is down a staggering 68% in just four years!

But the company remains the UK’s largest do-it-yourself investment platform. And the declining share price has pushed the dividend yield up to 5.2%. That is also the top FTSE 100 average.

So this is a chance for me to pick up some stocks and increase my passive income? Let’s have a look.

A grand year in passive income

The company is expected to pay a dividend of 41.1p per share for the current financial year. That means I need 2,435 shares to receive £1,000 in annual passive income.

As things stand, it will set me back around £18,950.

Today, the annual dividend for 45.55 %. So, assuming the payment is completed, I will have made a profit of £1,107 without buying any more shares.

Of course, no payment is guaranteed. However, the company has a good track record when it comes to rewarding shareholders, including paying special dividends.

Why have stocks struggled?

There have been several issues that have weighed heavily on stock prices in recent years.

First, in 2019, Woodford Equity Income Fund ran into trouble and faced a wave of ransom demands. It eventually collapsed, leaving thousands of investors with money trapped in suspended funds.

Unfortunately, Hargreaves Lansdown has actively recommended this investment to its customers on the platform. Suffered reputational damage over the issue, as well as a £100m lawsuit.

Second, there are question marks over the long-term viability of these transaction fees. The company currently charges up to £11.95 per trade.

In contrast, Charles Schwabone of the largest investment brokers in the world, reduced commissions to zero in the US in 2019. This means that users do not pay dealing fees or management fees.

Many companies now offer similar services, including Robinhood, and Freetrade. And Charles Schwab is now developing a zero commission offering for UK investors.

None of this was good for Hargreaves Lansdown, as the cost contributed to their finances.

For example, in the six months to 31 December 2022, the firm reported £54.6m in fee-based income from stockbroking transactions. That equates to about 15.5% of total revenue for the period.

And if we include the cost of the platform, then more than half of the company’s revenue may be under pressure from the competition.

Should I buy the stock?

There is something to like about Hargreaves Lansdown. It has a strong balance sheet, with a net cash position. And the current 92.1% client retention rate shows that the majority of their 1.77 million customers are now satisfied with their services.

However, I fear that the company will fail to attract new customers – especially young ones – in the coming year due to the cost of dealing.

Additionally, existing customers may be tempted by lower platform fees elsewhere. This would be dangerous, as a significant revenue stream now comes from interest on cash deposits held in customer accounts.

This uncertainty is why I will look elsewhere for passive income.