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. 

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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.

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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.

Created with Highcharts 11.4.3Rightmove Plc PriceZoom1M3M6MYTD1Y5Y10YALL27 Sep 201927 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

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%. 

Created with Highcharts 11.4.3Games Workshop Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL27 Sep 201927 Sep 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

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.

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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.

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