Why Tesco PLC Should Be A Candidate For Your 2014 ISA

Tesco PLC (LON: TSCO) could provide a solid cornerstone for your investments.

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TescoA lot of people might not see Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) as a great investment right now.

After all, the UK’s biggest supermarket has had a tough couple of years, losing ground to its nimbler competitors — and nobody is seriously expecting a return to earnings growth before 2016 at the earliest.

Share price down

On top of that, the share price has tumbled — it’s down more than 10% over the past 12 months to today’s 334p, while the FTSE has gained around 7%.

But I reckon such folks are wrong. Very wrong.

On any timescale, Tesco looks like a solid investment to me, which is why I have it in the Fool’s Beginners’ Portfolio.

We’re looking at steady dividend yields of around 4.5% from a share on a price-to-earnings (P/E) ratio of only about 11 — that’s a higher-than-average dividend from a share on a lower-than-average valuation.

Safety is the key

And it’s in a business that is one of the safest around. Market share between the big supermarkets might vary by a couple of percent every now and then, but with the market saturated and all the best supermarket sites already taken, that’s just tinkering at the edges — Tesco’s share of about a third of the market looks solid for decades to come.

And that’s why I reckon Tesco is especially suitable for an ISA investment.

Come April, we’ll have a whole new allowance of £11,760 to use up, and I really think the best way to use it is to look for suitable “long term buy and forget” shares — tuck away as much of an ISA’s worth as you can every year, and by the time you retire you should have a healthy pile of cash at your disposal.

What might an investment in Tesco be worth?

Shares beat cash

 Well, consider that a typical savings account paying 1.7% interest would turn an investment of £1,000 into £1,400 in 20 years’ time, what do you reckon the same investment in Tesco would be worth, assuming the stock market grows at 5% per year in line with its historical average and that your 4.5% dividend each year is reinvest in Tesco shares?

How does £6,100 sound?

And Tesco’s current troubles and low share price? That just means you’ll have picked up a bargain along the way.

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 Tesco. The Motley Fool owns shares in Tesco.

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