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.

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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.

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