Dividend Growth Stock Overview: Telephone & Data Systems

About Telephone & Data Systems

TDS Dividend Growth

Telephone & Data Systems has been expanding data services to their customers. They introduced the Apple iPhone to their customers in November 2013.
Photo courtesy Yutaka Tsutano/flickr.com.

Telephone & Data Systems (TDS) provides wireless and wired communications products and services, including cable, broadband internet access, and voice services, to nearly 6 million customers nationwide. TDS does this through the following majority or wholly owned subsidiaries: U. S. Cellular, TDS Telecom, OneNeck IT Solutions, Baja Broadband, Suttle-Straus, BendBroadband, and Airadigm Communications.

TDS owns 84% of U. S. Cellular, which provided 80.0% of TDS’s operating revenues and 62.4% of TDS’s operating income in 2013. U. S. Cellular provides mobile phone services to 4.7 million customers in 23 states. U. S. Cellular, which trades separately on the New York Stock Exchange under the ticket symbol USM, has been expanding data services to increase revenues; total data traffic nearly doubled from 2012 to 2013. The company is expanding 4G coverage and by the 3rd quarter of 2014, 74% of the data traffic was on the 4G network. U. S. Cellular expects to reach 93% of customers with 4G coverage by the early first quarter of 2015.

TDS Telecom is a wholly owned subsidiary of Telephone & Data Systems that provides high-speed internet, phone and TV services to customers in more than 100 communities. TDS Telecom also manages the operations of TDS subsidiaries OneNeck IT Solutions, Baja Broadband and BendBroadband. TDS Telecom provided 19.3% of TDS’s operating revenues and 19.0% of TDS’s operating revenues in 2013.

The remaining subsidiaries provided less than 1% of operating revenues and 18.6% of operating income:

  • OneNeck IT Solutions provides IT, cloud and hosting solutions, and IT hardware to mid-market commercial customers.
  • Baja Broadband, which was acquired by TDS in August 2013, provides residential and commercial video, high-speed internet, phone and data services to customers in six Southwest states.
  • Suttle-Straus provides communications solutions, direct mail and advertising materials to customers in the Wisconsin and Chicago markets.
  • BendBroadband provides a range of broadband and fiber connectivity, including TV and telephone services for customers in Central Oregon.
  • Airadigm Communications offers mobile phone services to customers in Wisconsin.

For the full year ending on December 31, 2013, TDS revenues were $4.9 billion, down 8.3% from $5.3 billion in 2012 and down 5.4% from $5.12 billion in 2011. Net income was $166.8 million in 2013, up 36.0% from $122.7 million in 2012 and down 33.3% from 250.2 million in 2011. As for earnings per share, TDS recorded EPS of $1.31 in 2013, $0.75 in 2012 and $1.85 in 2011. In general, TDS’s strategy is to allocate 75% of company resources to building the business and the remaining 25% to return to shareholders in the form of dividends and share buybacks.

The company is a member of the S&P Mid Cap 400 index and S&P’s High Yield Dividend Aristocrats index, and trades under the ticker symbol TDS.

Telephone & Data Systems’ Dividend and Stock Split History

TDS Dividend Growth

TDS has increased dividends since 1975; the company has grown its dividend at nearly 5% for the last decade.

Telephone & Data Systems has increased dividends since 1975 and usually announces dividend increases during the last week of February; the stock goes ex-dividend in mid-March. In March 2014, Telephone & Data Systems announced a dividend increase of 5.1%, which is in line with TDS’ usual dividend increases. I expect TDS to announce their next dividend increase at the end of February 2015.

TDS has been very consistent with dividend increases. The company has increased the dividend between 4% and 7% annually over the last two decades, with an occasional exception. The company’s 5-year compounded annual dividend growth rate (CADGR) is 4.51%. The 10-year and 20-year CADGRs are similar, at 4.97% and 5.61% respectively.

Telephone & Data Systems has split its stock 3 times in the last 30 years. Most recently, TDS split its stock 2-for-1 in May 2005. Prior to that, TDS split its stock 3-for-2 twice within 9 months, in March and December 1988.

Over the 5 years ending on December 31, 2014, Telephone & Data Systems stock depreciated at an annualized rate of 4.11%, from a split-adjusted $31.14 to $25.25. This significantly underperformed both the 13.0% annualized return of the S&P 500 and the 14.9% annualized return of the S&P Mid Cap 400 index during this time.

TDS’s Direct Purchase and Dividend Reinvestment Plans

Telephone & Data Systems has a dividend reinvestment plan, but not a direct purchase plan for their stock. In order to participate in the dividend reinvestment plan, you must already own 10 shares of TDS stock. (Note: TDS also has a series A of common stock which has more voting rights than the regular common stock; the series A stock effectively controls TDS, but is not publicly traded. The discussion here is in reference to the publicly traded common stock, not the series A common stock.)

The Telephone & Data Systems dividend reinvestment plan is extremely favorable to investors. Once enrolled, you can purchase additional shares directly through the plan (with a $10 minimum purchase) and, when reinvesting dividends you can purchase shares at a 5% discount to the current price. The company picks up all purchase fees associated with purchases through the plan, whether directly or by dividend reinvestment. There is no setup fee for new enrollees in the plan.

The only fees associated with the plan are when you go to sell your shares. When selling shares in the plan, you’ll pay 12 cents per share sold plus a transaction fee of between $15 and $25, depending on the type of sell order you request.

Helpful Links

Telephone & Data Systems’s Investor Relations Website

Current quote and financial summary for Telephone & Data Systems (finviz.com)

Information on the dividend reinvestment plans for TDS

Enrollment form for the TDS’s dividend reinvestment plan

Want to find out about more great dividend growth stocks?

Check out the list of current S&P Dividend Aristocrats.

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