Yahoo Finance Telephone and Data Systems (NYSE:TDS) Is Paying Out A Larger Dividend Than Last Year
The board of Telephone and Data Systems, Inc. (NYSE:TDS) has announced that it will be increasing its dividend by 2.8% on the 31st of March to $0.185, up from last year's comparable payment of $0.18. This makes the dividend yield about the same as the industry average at 5.3%.
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 36% 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' Distributions May Be Difficult To Sustain
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Even in the absence of profits, Telephone and Data Systems is paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.
Over the next year, EPS is forecast to expand by 38.9%. This is the right direction to be moving, but it is not enough to achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.
Telephone and Data Systems Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.49 in 2013, and the most recent fiscal year payment was $0.72. This works out to be a compound annual growth rate (CAGR) of approximately 3.9% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Earnings per share has been sinking by 18% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into 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.
Telephone and Data Systems' Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Telephone and Data Systems that investors should take into consideration. 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.
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