A Self Invested Personal Pension’s (SIPP) a powerful wealth-building tool for British investors. It’s a near-perfect vehicle for growing an investment portfolio without capital gains or dividend taxes impeding progress. And the added bonus of income tax relief only makes it even more powerful.
My SIPP’s focused on one core strategy – dividend growth. My goal is to have a portfolio generating chunky passive income in 30 years’ time when my retirement comes knocking. And luckily for me, the London Stock Exchange is filled with such opportunities. But the challenge is finding the best ones.
With that in mind, if I could only buy three stocks for this strategy, I’d pick Games Workshop (LSE:GAW), Howden Joinery (LSE:HWDN), and Safestore Holdings (LSE:SAFE).
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Strong stocks
All of these businesses are starkly different. Games Workshop specialises in plastic miniature manufacturing for hobbyists, Howden Joinery on home renovation, and Safestore on self-storage. That itself provides some welcome diversification. However, all three of these businesses share some common traits.
The most apparent is that they’ve all been winning investments over the last decade.
| Investment | FTSE 100 | Games Workshop | Howden Joinery | Safestore Holdings |
| Total Return | 79% | 3,190% | 230% | 472% |
| Annualised Return | 6% | 41.8% | 12.7% | 19.1% |
There are a lot of different factors driving the tremendous success of these businesses. However, a recurring theme is the presence of competitive advantages:
- Games Workshop created an addictive tabletop wargaming experience that cultivated enormous pricing power putting even companies like Apple to shame
- Howden Joinery optimised its logistics distribution to ensure 24-hour delivery of any critical parts for tradesmen
- Safestore expanded its network to ensure almost all of its customers have access to a storage facility within 30 minutes of driving
There are other factors that granted these businesses a competitive edge. But, most importantly, none are easily replicated, ensuring these firms will likely continue to thrive for years or even decades to come. And all the while, dividends continue to be hiked, with Safestore holding the crown for an uninterrupted 14 years!
Even winners can stumble
In my experience, winners tend to keep on winning. However, even the best companies in the world can eventually crumble if mismanaged, or a threat ends up being too much to bear. Despite their tremendous success so far, all three of these companies face risks that investors must consider.
Games Workshop’s pricing power may steadily be reaching its peak. After all, the cost of building an army to play Warhammer is now stretching into the hundreds of pounds, pushing more players into the arms of 3D printed alternatives.
Meanwhile, both Safestore and Howden Joinery are feeling the backlash of higher interest rates. While neither firm’s particularly overly leveraged, the same can’t be said for all of their customers. And we’ve already seen a slowdown in performance as projects and storage requirements are being postponed or cancelled.
Nevertheless, the long-term potential of all three of these enterprises continues to fill me with confidence. That’s why I’ve already added them to my SIPP.
