Telephone and Data Systems (NYSE:TDS) Will Pay A Dividend Of $0.185

The board of Telephone and Data Systems, Inc. (NYSE:TDS) has announced that it will pay a dividend on the 29th of December, with investors receiving $0.185 per share. This payment means that the dividend yield will be 4.0%, which is around the industry average.

See our latest analysis for Telephone and Data Systems

Telephone and Data Systems' Distributions May Be Difficult To Sustain

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Telephone and Data Systems is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to expand by 7.8% over the next year. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.

Telephone and Data Systems Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from $0.51 total annually to $0.74. This means that it has been growing its distributions at 3.8% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Telephone and Data Systems' EPS has fallen by approximately 41% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Telephone and Data Systems' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Telephone and Data Systems' payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Telephone and Data Systems (of which 2 are a bit unpleasant!) you should know about. Is Telephone and Data Systems not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.