A few years ago, I came into a small windfall (around £15,000). But rather than spend it, I decided to invest the full amount into my Self-Invested Personal Pension (SIPP) to give my retirement pot a meaningful head start. Yet with 30 years still to run, how I invested it mattered enormously.
Here’s the strategy I landed on, and why.
Why I chose income over growth
My Stocks and Shares ISA is already full of high-growth, high-conviction bets which have huge potential but also come paired with significant volatility. That’s why for my SIPP, I wanted something different. A counterbalance.
So instead of chasing surging capital gains, I built my £15,000 retirement pot around one specific idea: finding businesses that generate an excessive volume of cash, year in and year out, even in tough economic conditions, and reward shareholders with an ever-rising dividend.
These are the kind of businesses that quietly compound wealth in the background, decade after decade, without demanding constant attention. And when left to run for long enough, not only could my SIPP portfolio grow to something far more substantial, but also pay a healthy passive retirement income as well.
So which stocks did I buy? There were a few that caught my eye. And one business that sits at the heart of my SIPP today is Safestore Holdings (LSE:SAFE).
Why Safestore fits the brief
Owning a self-storage rental business may not sound exhilarating. But it’s hard to argue with a track record of 16 years (so far) of consecutive dividend increases backed by sturdy, predictable cash flows throughout the economic cycle.
So far, it hasn’t proven to be a phenomenal investment. The dividends have continued to flow and grow, but with higher interest rates taking their toll on the value of its real estate portfolio as well as impacting self storage demand from small- and medium-sized businesses, the share price has struggled of late.
But is that starting to change? During the six months ending in April, group revenue rose 6.9% to £120.6m, and underlying profit before tax grew 2.3% to £44.6m, with management describing this as a “return to earnings growth”. However, the most exciting part is what’s happening in Europe.
The Expansion Markets division, covering Spain, the Netherlands, and Belgium, grew revenue 25.7% in the first half. Spain alone delivered 21.2% like-for-like growth.
The trajectory is eerily similar to what Safestore achieved almost two decades ago in the UK before going on to become the dominant player. So while another UK-style success isn’t guaranteed, the firm certainly seems to be off to a strong start.
The bottom line
While I remain bullish for the next three decades, Safestore isn’t without its flaws. Higher rates may only be a temporary headwind, but they have nonetheless pushed up borrowing costs.
That not only makes it more expensive for the firm to expand internationally but also applies significant pressure to its customer base, effectively putting the handbrake on near-term growth. And if the macroeconomic environment begins to deteriorate instead of recover, that ‘handbrake’ could get pulled even harder.
Nevertheless, for a SIPP investor with decades to go before retirement, Safestore’s definitely worth a closer look, in my opinion. And it isn’t the only dividend growth stock I’ve got my eye on right now…
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Zaven Boyrazian owns shares in Safestore Holdings.
