Telephone and Data Systems (NYSE:TDS) Has Affirmed Its Dividend Of US$0.17

By
Simply Wall St
Published
May 26, 2021
NYSE:TDS

The board of Telephone and Data Systems, Inc. (NYSE:TDS) has announced that it will pay a dividend on the 30th of June, with investors receiving US$0.17 per share. Including this payment, the dividend yield on the stock will be 2.7%, which is a modest boost for shareholders' returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Telephone and Data Systems' stock price has increased by 41% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Telephone and Data Systems

Telephone and Data Systems' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Telephone and Data Systems' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to fall by 45.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 70%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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NYSE:TDS Historic Dividend May 27th 2021

Telephone and Data Systems Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was US$0.41 in 2011, and the most recent fiscal year payment was US$0.70. This works out to be a compound annual growth rate (CAGR) of approximately 5.4% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Telephone and Data Systems has seen EPS rising for the last five years, at 20% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Telephone and Data Systems' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Telephone and Data Systems is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Telephone and Data Systems has 4 warning signs (and 2 which are potentially serious) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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