2 UK growth stocks I’d stash in an ISA for the long haul

Growth stocks that also pay dividends can be great investments. But investors should be aware of the tax implications if things go well. 

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A Stocks and Shares ISA can be a great asset for growth investors. But working out what to invest in is also crucial to building wealth over the long term.

I think Rightmove (LSE:RMV) and Games Workshop (LSE:GAW) look like great stocks to consider for an ISA. Both have something important in common that makes them stand out to me.

Tax advantages

Investments held in a Stocks and Shares ISA are exempt from taxes on dividends and capital gains. And that can be a big advantage for overall returns.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

With dividends, if I can’t keep all of the income a company distributes to me, I can’t reinvest it. And that can reduce the rate at which my investment compounds over time.

In the case of capital gains, the point of earning a big return on an investment is limited if I have to pay it back in taxes when I come to realise it. That’s why an ISA is important.

Equally though, avoiding taxes on returns is valuable only if an investment generates some meaningful returns in the first place. And the key to this is working out what to invest in.

Rightmove

Rightmove has grown its earnings per share by an average of 9% per year over the last decade. And the stock is up 209% as a result.

Running the UK’s largest property platform doesn’t take much in the way of physical assets. As a result, the company has managed to distribute 79% of its net income as dividends.

I think the business has a decent chance to keep growing its earnings going forward. And that should lead to higher dividends as well as share price gains.

Rightmove’s competitive position is currently under threat from a powerful rival and that’s a risk investors should be aware of. But disrupting the market leader won’t be easy. 

While barriers to entry might be low, achieving the kind of scale Rightmove has is likely to be extremely difficult. And that makes me think the stock could be a good investment.

Games Workshop

Over the last 10 years, Games Workshop’s earnings per share have gone from 39p to £4.58. That’s some staggering growth and the result has been a stock that’s up 1,700%. 

The company’s biggest asset is Warhammer. And this has had a durable appeal with its followers, which has been extremely valuable for investors. 

Like Rightmove, Games Workshop’s business is relatively light on physical assets. That’s why it has been able to grow while paying out most of its net income to investors.

The big question is how far this can continue. Expanding into new geographies has been a key part of the company’s previous growth and this can’t go on forever. Plus it could be vulnerable to new competitors in its market.

Nonetheless, I think Games Workshop has an extremely strong competitive position and attractive unit economics. And that’s why I’ve been buying it for my ISA.

ISA investments

When companies grow while distributing lots of income to shareholders, investors need to be mindful of taxes. And a Stocks and Shares ISA is a great asset here.

I’ve hit my ISA contribution limit for this financial year. But Games Workshop and Rightmove are stocks I’d love to either own or add to in my portfolio for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Games Workshop Group Plc and Rightmove Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

£20k of savings? Here’s how an investor could turn that into passive income of £5k a year

A £20k lump sum, invested in a mix of blue-chip shares with a long-term approach, could generate thousands of pounds…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Is the BP share price set for a 75% jump?

The highest analyst target for BP shares in 2025 is 75% above the current price. So should investors consider buying…

Read more »

UK money in a Jar on a background
Investing Articles

An investor could start investing with just £5 a day. Here’s how

Christopher Ruane explains how an investor could start investing in the stock market with limited funds, by following some simple…

Read more »

Solar panels fields on the green hills
Investing Articles

This renewable energy dividend stock offers a huge 13% yield

Dividend stocks focused on solar and other renewable energy sources are falling out of favour. It's time to take a…

Read more »

Investing Articles

Here’s why I’m expecting big things from my Stocks and Shares ISA in 2025!

Our writer explains why he believes his Stocks and Shares ISA is well positioned to deliver strong growth over the…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

When it comes to passive income, I think investors should listen to Warren Buffett’s advice about Olympic diving

When it comes to investing, Warren Buffett thinks it’s best to keep things simple. With Olympic diving, though, it’s a…

Read more »

Investing For Beginners

3 top Vanguard ETFs to consider for an ISA or SIPP in 2025

Looking for core holdings for an investment account or SIPP? These Vanguard ETFs could be worth considering, says Edward Sheldon.

Read more »

Investing Articles

Are these the best 10 UK shares to consider buying and holding in 2025?

Here are the best-performing UK shares for the second half of 2024. Can they maintain their upward trajectory? Zaven Boyrazian…

Read more »