A SIPP is perfect for my preferred type of long-term investment.

By looking decades ahead and thinking about where business sectors and specific companies may be headed, I think it can support to decide what type of shares bought today can support an investor prepare for a larger SIPP in the future.

Convert 30 thousand pounds in over 406 thousand pounds!

I don’t buy stocks just because of their profitability. After all, no dividend is ever guaranteed.

However, I think an approximation of the yields of the stocks I mention below may support illustrate this Why I am a supporter of a long-term approach to investing.

If an investor invests £10,000 Legal and general today and after increasing this investment by 8.9% per year, after 30 years the investment will be worth over PLN 129,000. pounds. By putting in the same amount M&G and after adding up at 10%, after 30 years the value of the package will be over PLN 174,000. pounds. For British-American tobacco (LSE: BATS), at an interest rate of 8.1% for 30 years, the investment would be worth over £103,000. pounds.

Therefore, the currently invested PLN 30,000 pounds could potentially be worth over 406,000. pounds in three decades.

The power of combining high-yield stocks

How likely is this to happen?

I didn’t pull these numbers out of skinny air. These are the current dividend rates of high yielding stocks.

The example assumes no changes in share prices and a constant dividend per share. If the dividend goes up, the result could be even better. But dividends can also be reduced or canceled.

All three stocks have a no-cut dividend per share policy. Virtually everyone has grown it annually in recent years. However, high cap rates may be a warning sign that the city expects price cuts at some point.

Assessment of potential risks and benefits

To illustrate this point, consider British American Tobacco.

The FTSE100 the company is a sporadic British dividend aristocrat, having increased its payout per share every year since the last century. Despite sinking cigarette volumes, tobacco remains a huge – and extremely profitable – business.

The British brand’s portfolio of premium brands gives it pricing power in this market. It could also support it as it expands its non-cigarette business into product lines such as vaporizers.

However, British Americans are heavily indebted and their main market is in systemic, long-term decline. This may pose a real risk to the dividend. That said, while there are risks, I believe British-American also has many strengths and I see it as a stock investors should consider for their SIPP.

Building a portfolio with a high rate of return

After all, risk is part of investing.

I have Legal & General and M&G sections in my SIPP. Both have strengths such as a enormous market of potential customers, deep experience and a sizeable customer base.

But what if markets crash? I can imagine many investors trying to withdraw funds, which will hurt the profits of asset and investment management companies. This could prompt any company to cut (or even suspend) its dividend.

However, long term, I like the investment case for these companies and have no plans to sell my shares.