Telephone and Data Systems (NYSE:TDS) Will Pay A Dividend Of $0.18

The board of Telephone and Data Systems, Inc. (NYSE:TDS) has announced that it will pay a dividend on the 30th of September, with investors receiving $0.18 per share. This means that the annual payment will be 4.2% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Telephone and Data Systems

Telephone and Data Systems Is Paying Out More Than It Is Earning

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before this announcement, Telephone and Data Systems was paying out 81% of earnings, but a comparatively small 10% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to fall by 20.7%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 105%, which could put the dividend under pressure if earnings don't start to improve.

Telephone and Data Systems Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.432 in 2012 to the most recent total annual payment of $0.72. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Telephone and Data Systems' Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Telephone and Data Systems has been growing its earnings per share at 13% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

Overall, a consistent dividend is a good thing, and we think that Telephone and Data Systems has the ability to continue this into the future. The dividend is easily covered by cash flows and has a good track record, but we think the payout ratio might be a bit high. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Telephone and Data Systems (2 shouldn't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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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