When building a portfolio, I like looking for good quality companies that I can buy and forget. The goal with these holdings is to achieve a steady level of growth for many years, without needing to constantly monitor the stock. For these longer-term holdings, I have found that FTSE 100 shares tend to be the best candidates given their size and more stable earnings.
I’m looking for companies that can grow consistently for many years, often whilst paying a decent dividend. I do not want a company that can boost its earnings dramatically in one year, and then struggle in subsequent years. I want high-quality companies that give me enough confidence to leave them alone, without fear that my investment is at significant risk.
Down, but not out
A prime example of what I am after is Hargreaves Lansdown (LSE: HL). The company operates direct to investor services in the UK, providing managed funds, investment execution, and support services. It has a market cap of £4.3bn, considerably below the FTSE 100 average of £19.5bn, but still a reasonable size company.
The company has suffered over the last three years. The share price has fallen 33% in 2022, and is down over 60% since its peak in 2019. Furthermore, the company has struggled with negative publicity since the infamous Woodford fund collapse. This has increased the level of uncertainty around the company and resulted in poor share price performance.
Despite these issues, I believe that Hargreaves Lansdown is a great fit for my portfolio. The company has very impressive profit margins and cash generation. It is also forecast to grow turnover by 10% in the next year, considerably above its three-year average of 6.7%.
The company also has very low levels of debt and holds significant levels of cash on its balance sheet. In addition, it is currently paying a dividend yield of 4.4%, putting it above the FTSE 100 average. This dividend has been paid consistently for 15 years and is forecast to grow by 3.6% in the next year.
High P/E
It is, of course, important to note that the company currently has a price-to-earnings (P/E) ratio of 18. This doesn’t exactly make it a value opportunity. This level increased following a significant fall in earnings per share in 2022, and could be a negative sign if this trend is likely to continue.
Nonetheless, I tend to agree with the statement released by the management. The chief executive outlined considerable economic and geopolitical turbulence as a core driver of reduced investor confidence. Consequently, this impacted the levels of new business generated by the company, although this is unlikely to persist for many more years.
Therefore, I would add Hargreaves Lansdown to my portfolio. I believe the company presents a great opportunity to achieve long-term growth on my investment.