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Should I Buy Vodafone Group for My ISA?

Friday - 3/8/2013, 10:37pm  ET

LONDON -- ISA time is almost upon us again, and we'll soon have a brand new, tax-efficient, allowance of 11,520 pounds to invest in a stocks and shares ISA for the financial year starting April 6. That's on top of this year's allowance of 11,280 pounds, which must be used by April 5. (For more information on ISAs, just click here.)

So whether you're looking for something for your next allowance, or whether you need some ideas for using up this year's subscription before it's too late, what should you choose? Well, the tax-efficient status of an ISA adds a nice extra to the benefits that can accrue from decades of investing.

And for me, that means going for the biggest and best of our companies -- the ones that dominate their fields, and which are likely to keep on rewarding us for 10, 20 years, and more.

Should I buy Vodafone for my ISA?
And I reckon Vodafone Group  , on a current share price of 179 pence, fits firmly in that category. But why?

First of all, with a market cap of 88 billion pounds, Vodafone is one of the biggest -- it's actually the third-largest company within the FTSE 100 at the moment.

But more than that, it's international, and while other mobile-phone operators might be struggling for thin slices of the U.K. pie, Vodafone does about only 12% of its business here. The rest is spread over Europe, India, Africa, the Middle East -- and of course the USA, where Vodafone owns 45% of Verizon Wireless, part of Verizon Communications.

Recent talk of a merger between Vodafone and Verizon gave a boost to Vodafone's share price, though it seems unlikely that such an alliance will materialize. But a good few observers are betting on a sale of Vodafone's Verizon stake instead, at a nice price for the British group's shareholders.

In-demand technology
It was Vodafone's global reach that helped it secure a new contract with German company ThyssenKrupp last month. The deal will see Vodafone providing mobile communications in Germany and 29 other countries, involving 60,000 mobile voice and data connections, and 50,000 machine-to-machine connections. And on March 8, a 10-year deal to supply the New Zealand Police with mobile communications was announced.

Back in the U.K., Vodafone paid the largest amount for the biggest chunk of broadband spectrum in the recent 4G auction, which ended in February, shelling out 790 million pounds. Although revenue from voice calls across Europe is falling in a saturated market, the demand for data services is really still in its infancy -- and the winning auction bids could put Vodafone firmly at the leading edge.

Steady income
As a mature company, Vodafone pays a steady dividend.

The payout has been rising steadily, and during the past five years it has provided an annual yield ranging from 5% to 6.3%, which is among the best for FTSE 100 companies. Forecasts for the next three years suggest further rises, too, with a yield of more than 6% each year. 

So even if the share price doesn't rise, you should receive an income that's significantly better than any cash ISA is going to offer -- and an income twice that of the FTSE average of about 3.1%.

But what about share-price growth? Current analyst expectations for the year to March 2013 put the shares on a P/E of only 12, which is less than the long-term FTSE average of around 14. And if the next two years' forecasts prove accurate, the rating should fall to about 11 for 2014 and 10.5 for 2015.

And for me, that's just too cheap. I have Vodafone in the Fool's Beginners' Portfolio (which isn't doing badly at all), and the share is certainly on my shortlist for my 2013/14 ISA!

Another option
If you're looking for other ISA possibilities that have been rewarding shareholders with strong dividends for years, I recommend you take a look at the Fool's recently chosen Top Income Share For 2013. This top share is another FTSE 100 giant, and it offers a dividend yield of around 5.6% -- and there's potential for share-price appreciation, too.

You can find out the identity of this share completely free of charge, but the report will be available for a limited time only. So click here to get your copy today.

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This article was originally published as Should I Buy Vodafone Group for My ISA?on Fool.com

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