(What follows below is a summary of key points by Mikail ibn Mahboob Ariff.)
Shaikh Muhammad Bazmoul explains a common misunderstanding regarding the meaning of the hadīth: “Whoever recites a ḥarf from the Book of Allāh…I am not saying “Alif Lām Mīm” is a ḥarf; rather, “Alif” is a ḥarf, “Lām” is a ḥarf, and “Mīm” is a ḥarf.”
“Ḥarf” only came to mean a letter of the alphabet in later times.
What it really means in the ḥadīth is “word,” not “letter.” Ibn al Jawzī quotes this as the opinion of Ibn Taimiyyah.
So there is no extra reward for reciting مَالِك [mālik] over مَلِك [malik] just because the former has an extra letter in it. (See also: twitter.com/momalbaz/status/756118659173580800?s=09)
As for “Alif Lām Mīm,” these three are the names of the letters, so “Lām,” for example, is a word here signifying the name of the letter of the alphabet; it is not the single letter ل [l] itself.
For this reason, when Al-Khalīl asked his companions to pronounce the alphabet letter ز [z] from the name زَيْد [Zaid], upon which they said زَاي [zai], he replied: “You have all only voiced the name [of the letter]. The letter [in the alphabet] is only .زَهْ [zah]”.