I bought this bargain share for my Stocks and Shares ISA as I build a second income

Investing is all about timing, so when a high-yielding dividend stock reached bargain-basement levels, John Maslen added it to his Stocks and Shares ISA.

| 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.

Edinburgh Cityscape with fireworks over The Castle and Balmoral Clock Tower

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.

There is a key rule that I always apply to my Stocks and Shares ISA. Buy for growth and invest for the long term.

This was behind a significant addition to my investments recently.

I made an initial investment in Vodafone (LSE: VOD). I was attracted by its historic 8% dividend yield and also because the share price was hovering around £1.

The shares are up 10% since I bought, but I expect this to be a strong long-term investment. Also, I am not alone in thinking there is growth potential in Vodafone.

Telecoms giant Liberty Global has purchased a significant stake because it feels the business is undervalued.

This isn’t a small investment. It bought 1.33 billion shares. Chief executive Mike Fries said the investment was made because the share price “does not reflect the underlying long-term value of their operating businesses”.

This vote of confidence suggests to me that Vodafone’s years-long share price fall has reached its lowest point. The share price is now just 30% of its value in 2014.

International exposure

The cause of investor concerns is the impact of fierce competition in its European markets. Clearly, this could risk further decline. But I believe this business has the funds and the focus to deliver long-term growth.

Firstly, Vodafone is a well-known brand serving more than 30 international markets. Secondly, its substantial net debt reflects the sheer size of the business. It also indicates that it has the power and scale to respond to competitive threats.

After all, it still has more than 300m mobile customers and 27m fixed-broadband customers. 

Furthermore, its Q3 2022 trading update was encouraging. Despite falls in some markets, it is adding hundreds of thousands of users in high-growth markets, such as South Africa.

In South Africa, Vodafone added 132,000 mobile contract customers during Q3 2022. It also has a new ‘super-app’, called VodaPay, that has attracted 2.7 million users. It reports higher data usage and good demand for financial services.

In total, across Africa, Vodafone has 185 million mobile customers and 90 million data users.

In Turkey, another growth market, Vodafone added 439,000 mobile contract customers during Q3 2022.

That’s not forgetting the UK, which accounts for 14% of revenues, where healthy growth continued.

There are some market challenges, mainly Germany, Italy and Spain. But overall revenues remain broadly stable. Furthermore, the consensus of analysts is for a dividend of around 8p a share for the next two years. This would represent a yield of nearly 9% on the price I paid for the shares.

Overall, I tend to agree with big investors such as Liberty Global. Vodafone faces challenging times. But I think the stock is undervalued considering its potential for growth. It is set to be a key part of my Stocks and Shares ISA for years to come.

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.

John Maslen has positions in Vodafone. The Motley Fool UK has recommended Vodafone Group Public. 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

Investing Articles

Is it madness to buy Palantir shares after Q3 earnings?

Palantir stock's surging again after the firm's Q3 earnings report. But after a 150% gain, is it too late to…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

£6,000 in savings? Here’s how I’d aim to turn that into £1,032 a month of passive income!

A small investment in high-dividend-paying stocks with the returns used to buy more shares can generate big passive income over…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

As Lloyds’ share price tumbles 14%, is this an unmissable opportunity for me to buy at a bargain-basement price?

The Lloyds share price is substantially below its year high, but decent earnings prospects should drive its price and dividend…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

2 UK shares that could rise if Trump wins the Presidential election

These UK shares are among the FTSE 100's most popular stocks. And they could rise in value if Donald Trump…

Read more »

Closeup ruffled American flag representing US stocks and shares
Investing Articles

2 UK stocks that could rise if Harris wins the Presidential election

Royston Wild believes these UK stocks could receive a bump if Kalama Harris wins the Presidency, giving their share prices…

Read more »

Investing Articles

After a 96% plunge, is buying more Aston Martin shares throwing good money after bad?

Just two weeks after buying Aston Martin shares Harvey Jones found himself nursing a painful loss. Yet after recent news…

Read more »

Investing Articles

After crashing 45% in October, should I buy this FTSE 250 share for my Stocks and Shares ISA?

Roland Head explains why he’s tempted to add this risky FTSE 250 turnaround share to his Stocks and Shares ISA…

Read more »

Investing Articles

Could I use a stock market crash to turn £20k into half a mil in just over a decade?

A stock market crash might sound terrifying to some but it can also present a once-in-a-lifetime opportunity to accumulate generational…

Read more »