9% yield and exceptional value! Here are the possible choices for my Stocks and Shares ISA

When I'm looking for a strong dividend investment for my Stocks and Shares ISA, I'm not just after a strong yield. And I want good stock price growth or good valuation.

Vodafone (LSE:VOD) is in a unique position at the moment for a value investor like me looking for good cash flow. With a whopping 9% yield and a price-to-sales (P/S) ratio of 0.66, I'm very tempted.

Good cash flow and value

I believe that strong cash flow is one of the most attractive aspects of investing. After all, we use pounds to pay our bills, not stocks and shares.

Vodafone has a strong dividend record, with a yield of 6.7% as its 10-year median. This has been very high over time, but the main reason for this is that its share price has been rising.

While that has concerned investors in the past, I think it is now at a point where valuations are so low that the price will start to rise again soon.

The group has reported negative earnings and revenue growth over the past three years on average. However, analysts estimate that revenue will grow by about 2% per year for the next three years. Furthermore, its EPS is estimated to grow by 32.5% annually during this period. So, I think we are at the end of a long-term price decline at the moment.

It deals with risks

However, the company faces wider risks. Recently, it has faced challenges in key markets such as Germany, where it is struggling to retain legacy cable TV customers. In addition, its performance in Spain and Italy has been weak recently, as year-on-year sales have been reported in both countries.

Also, the business has a weak balance sheet at the moment, with high debt levels. It is also being scrutinized by the UK's Competition and Markets Authority regarding its merger with Three UK. This merger seems important for Vodafone and the trio to compete with big players like EE. However, it may interfere with the separation if there are challenges in bringing the two companies together.

Staying aware

With the company's history of losing value, major mergers underway, and contract growth rates recently, I will need to monitor it more often if I buy its shares.

A dividend yield of up to 9% is very rare and can be seen as a gift. But in a worst-case scenario, the stock may drop significantly in price. Potentially, it could be a price trap, where the price remains depressed and fails to grow again despite better earnings and revenue growth on the horizon.

But I still think it's worth my cash. Standard & Poor's data shows that the average annual total return of S&P 500 from 1926 to 2022 about 10%. That's more than Vodafone's dividend yield alone.

Also, I think the shares can trade at a higher P/S ratio of 0.75 in 18 months. This is close to its 10-year producer of 1.1. So, if it reaches the analyst consensus sales estimate of $42.6bn by March 2026, it could have a market value of $32bn. That would represent 23.5% growth from its current valuation of $25.9bn.

I consider it

I learned from Warren Buffett that it's not the amount of investments I make but the quality of those I choose that matters. So, I'm taking my time with this decision. Vodafone continues on my watch list for now.