When it comes to building long-term retirement wealth, a SIPP is one of the most powerful tools available to UK investors. After all, with the government providing extra capital to invest through tax relief, the process of building retirement wealth is massively accelerated.
That’s why I’m using mine to do something specific: craft a portfolio built exclusively around dividend growth stocks. These businesses may not have the highest yields today. But by continuously hiking payouts, the income generated can evolve into something spectacular.
Over time, higher payouts and automatic dividend reinvestment have caused my portfolio to naturally concentrate into a small number of positions. And right now, LondonMetric Property (LSE:LMP), Melrose Industries (LSE:MRO), and Howden Joinery (LSE:HWDN) together make up a combined 32% of my SIPP.
That level of concentration obviously comes with notable risk. But it’s a risk I’m willing to take. Here’s why.
Three businesses, one common thread
Each of these businesses operates in a completely different sector. Yet they share a defining characteristic: durable competitive advantages that support long-term dividend growth, even in periods of macroeconomic turbulence.
LondonMetric is a REIT specialising in logistics and convenience retail property. The structural tailwind of e-commerce driving sustained demand for last-mile distribution assets makes this a genuinely compelling long-term compounder. And contractual rental uplifts underpin a growing dividend that has proven remarkably resilient.
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Meanwhile, Melrose is an aerospace and engineering group, supplying mission-critical components to aircraft manufacturers including Airbus and Boeing. The multi-decade aerospace upcycles driven by surging global air travel and fleet renewal programmes, as well as the rearmament of Europe, provide a long runway for earnings and, once again, dividend growth.
Lastly, Howden Joinery is the UK’s largest trade kitchen supplier, selling almost exclusively to small builders and tradespeople rather than directly to consumers. That B2B model insulates it from the worst of retail sentiment swings, and its capital-light franchise-style branch network generates consistently strong free cash flow.
That’s why all three have been able to raise shareholder payouts for at least five years in a row, with LondonMetric showing off with its decade-long hiking streak.
What could go wrong?
Of course, even my three favourite holdings come with weak spots worth considering carefully.
Like most REITs, LondonMetric is sensitive to movements in interest rates. If borrowing costs remain elevated for longer than expected, refinancing pressures could weigh on both its own financials and those of its tenants, making lease renewals more challenging.
Melrose’s multi-year transition into an aerospace pureplay still has plenty of execution risk for management to overcome. But even if this process is completed flawlessly, the firm remains exposed to the wider cyclicality of the commercial aviation sector.
As for Howden, with the bulk of its revenue stemming from the sale of its fitted kitchens, it too is indirectly impacted by higher interest rates, which softens activity within the home renovation market.
But here’s what gives me some contrarian confidence.
All three businesses have continued to grow their dividends through recent periods of significant external stress. That kind of consistency is hard to fake. And it’s exactly why I haven’t trimmed a single position despite the growing concentration.
So, for investors looking for dividend growth stocks to anchor a long-term retirement portfolio, I think all three are worth mulling over.
Should you invest £5,000 in Howden Joinery Group Plc right now?
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Zaven Boyrazian owns shares in Howden Joinery, LondonMetric Property, and Melrose Industries.