Why Vodafone Group plc Should Not Be In Your 2014 ISA

Vodafone Group plc (LON: VOD) could be a good investment, but there are complications.

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vodafoneIt has a market cap of £65bn, and it’s in a business that’s sure to remain profitable for decades to come, so surely Vodafone (LSE: VOD) (NASDAQ: VOD.US) is a great bet for your ISA this year?

I think not, and I’ll tell you why.

Long-term stability is paramount

Now, while industry longevity and reliability are high on my list of priorities when it comes to picking shares for an ISA (in fact, I’d place them higher than current short-term share valuation), there are other considerations.

There’s an allowance of £11,760 making its way to us in April (and many people will still have room in last year’s allowance), and I think an ISA is a perfect vehicle for a “long term buy and forget” strategy — that is, to shelter shares in companies that you expect to just sit there without troubling you for 20 years or more.

Verizon deal

As existing Vodafone shareholders know right now, there are complications concerning the recent Verizon deal. As a result of the sale of Vodafone’s stake in Verizon Wireless to Verizon Communications, Vodafone shareholders are set to receive a combination of cash and Verizon shares.

And you can take either B-shares or C-shares, where the former is treated as capital and the latter is treated as income — the cash that comes with the C-share option will take the form of a dividend. So people will choose whichever option better suits their tax status. Not a problem if you have your Vodafone shares in an ISA?


Well, there’s the small matter of a tax withholding on dividends paid on US shares that you might have to deal with. And then some ISA providers won’t let you hold Verizon shares in your ISA. For a lot of people, selling their Verizon shares will probably be the best thing to do.

But it will be a relatively small number of shares for most ISA-holders, and not all brokers will be offering free or cheap dealing to help you get shut of them — and extra dealing charges are really not what you want imposed on your long-term ISA strategy.

Foreign mess

Essentially, the palaver associated with complicated foreign dealings like this are well avoided. And even if the Verizon deal is relatively small in the scheme of things, we’ve already had rumours of pending approaches from the likes of AT&T.

I’ve no idea who, if anyone, will take over or merge with Vodafone, or what portions of which companies will be bought, sold or swapped in the coming years — but the presence of more big international deals in Vodafone’s future is very likely indeed.

Keep it simple

So I’d say leave companies with complex international interactions alone, and for your ISA just stick to solid UK firms with greater chances of an unbroken few decades ahead of them. Oh, and it doesn’t help that I think Vodafone shares, on a forward P/E of 26 for 2015 and with a weakened dividend policy from the firm these days, are currently overpriced.

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.

> Alan does not own any shares in Vodafone.

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