The Motley Fool

Forget the Cash ISA! I’d buy Tesco in a Stocks and Shares ISA instead

Image source: Getty Images.

If you’re looking for a best buy Cash ISA, then brace yourself for disappointment. The top rate you can get right now on instant access is just 1.36%. If you’re willing to lock your money away for five years, you can squeeze out 1.75%. After more more than a decade of rock-bottom interest rates, with little sign of respite, the Cash ISA no longer cuts it

The stock market is a different matter. It’s on its longest bull run in history, making investors rich. Those who left large sums in a Cash ISA when they could have invested in a Stocks and Shares ISA will be kicking themselves.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Stock markets don’t go straight up, of course, and nor do individual company share prices. The Tesco (LSE: TSCO) share price fell when the company lost its way during Philip Clarke’s spell in charge, amid profit warnings, falling sales, the horsemeat controversy, and a £250m accounting scandal. But it’s been on an upwards trajectory since CEO Dave Lewis took over in 2014.

Income and growth

I would rather accept the higher level of risk that comes from investing in a top FTSE 100 stock like this one than doom my money to a slow death, by leaving it in a cash account paying less than the inflation rate.

Tesco’s share price is up more than 17% over 12 months which, on its own, thrashes what you would have got in cash. However, the attraction of top stocks like this doesn’t just come from the share price, but the regular dividend payments they hand out to shareholders as a reward for holding their stock.

Tesco stopped its dividend payments after the accounting scandal, but Lewis restored them in 2017 and they’re increasing steadily. The current forecast yield is 3.6%, nicely covered twice by earnings. But by next year that should have hit 3.9%, and hopefully there’ll be plenty more progression after that.

This is far more income than you will get on a Cash ISA and, just as importantly, it’s a rising income, one that should increase over time.

Higher risks, higher rewards

Now Tesco as a business still faces challenges. Although wages are finally rising faster than inflation, shoppers still don’t feel flush with cash. Competition is intense, as Aldi and Lidl expand aggressively. The group’s margins are wafer thin, at just 3.4%. The economy is uncertain. The Competition and Markets Authority is calling for action after Tesco unlawfully blocked rival supermarkets from opening shops near its stores. Coronavirus worries overhang everything.

All of these issues could knock the Tesco share price. However, City analysts remain optimistic about its long-term earnings potential, predicting growth of 24% this year, followed by 8% and 7% over the next two years.

Lewis is also set to leave in the summer after a successful five-year stint, and investors will miss him. But I’d still buy Tesco’s stock ahead of a Cash ISA.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.