On the 29 March 2019, Telephone and Data Systems, Inc. (NYSE:TDS) will be paying shareholders an upcoming dividend amount of US$0.17 per share. However, investors must have bought the company’s stock before 14 March 2019 in order to qualify for the payment. That means you have only 3 days left! Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let’s take a look at Telephone and Data Systems’s most recent financial data to examine its dividend characteristics in more detail.
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How does Telephone and Data Systems fare?
Telephone and Data Systems has a trailing twelve-month payout ratio of 53%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect TDS’s payout to fall to 45% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.1%. Furthermore, EPS is also forecasted to fall to $1.03 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. TDS has increased its DPS from $0.40 to $0.66 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes TDS a true dividend rockstar.
Relative to peers, Telephone and Data Systems generates a yield of 2.1%, which is on the low-side for Wireless Telecom stocks.
Considering the dividend attributes we analyzed above, Telephone and Data Systems is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for TDS’s future growth? Take a look at our free research report of analyst consensus for TDS’s outlook.
- Valuation: What is TDS worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TDS is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.