With 2014 ISA time fast approaching, you really need to think of how to use up any unused allowance from this year and about where some of the coming year’s £11,760 might be used.
You’ll get the most from your ISA investments by picking shares that provide dividends and capital growth for years to come, rather than trying to dive into and out of whatever happens to catch your eye right now.
With that in mind, I’m looking for shares that I think should reward you for the next 20 years — not just for the next two or three.
Telecoms is a must-have
And I reckon BT Group (LSE: BT-A) (NYSE: BT.US) fits the bill nicely.
BT has certainly been around a long time — as the world’s oldest telecommunications company it has been in existence in some form since its precursor The Electric Telegraph Company was founded in 1846.
And this year will be BT’s 30th anniversary as a publicly-quoted company, after privatisation in 1984. There’s little doubt that BT should be a safe long-term candidate for your portfolio (well, as safe as any can be).
What’s BT’s recent performance looking like? Lets have a look at some fundamentals:
| Mar | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2009 | 16.0p | -33% | 4.9 | 6.5p | — | 8.3% | 1.4x |
| 2010 | 17.3p | +8% | 7.2 | 6.9p | +6.2% | 5.6% | 1.4x |
| 2011 | 21.0p | +21% | 8.8 | 7.4p | +7.2% | 4.0% | 1.4x |
| 2012 | 23.7p | +13% | 9.6 | 8.3p | +12% | 3.7% | 1.3x |
| 2013 | 26.6p | +12% | 10.5 | 9.5p | +14% | 3.4% | 1.4x |
| 2014* | 26.2p | -2% | 15.2 | 10.8p | +14% | 2.8% | 1.2x |
| 2015* | 29.0p | +11% | 13.7 | 12.4p | +15% | 3.2% | 1.3x |
| 2016* | 31.6p | +9% | 12.6 | 14.6p | +17% | 3.7% | 1.3x |
* forecast
BT was hit by the recession, with falling stock markets knocking a fair chunk off the value of its pension fund assets, and that millstone held the shares back for a while — but look how earnings and dividends have been rising.
And since 2009’s low point, BT shares have more than five-bagged in price to around 400p, while the FTSE 100 has only just about doubled — if you’d had them in your 2009 ISA you’d have done very well indeed.
We can’t expect that rate of growth to continue, but how much might £1,000 invested in BT in your new 2014 ISA be worth in another 20 years?
A 5-bagger in 20 years?
If we assume shares will grow at an average of 6% per year over the next 20 years, which seems plausible as the world heads out of recession, then that alone would turn an initial £1,000 into £3,200 in 20 years — and by comparison, a cash ISA offering a typical 1.7% would turn your grand into just £1,400.
But that’s ignoring dividends. If we add another 3% per year for BT’s possible dividends — and over the longer term it seems likely that BT dividends will be yielding better than the FTSE’s average 3.2% — how much extra will that add?
Well, if you reinvest those dividends in new shares every year, your total after 20 years would be boosted to £5,600!
And in an ISA, it will be totally tax-free!
BT shares beat cash!
That’s just speculation, of course, but it does show just how much better a long-term investment in shares can be than in cash, providing you pick a company that’s likely to be around and paying dividends for a few more decades — and BT deserves your consideration.