Telephone and Data Systems (TDS) raised its 2011 dividend by 4.4%. The company targets to pay an annual dividend of 47 cents per share in 2011, up from 45 cents paid last year.
The company will pay its first quarter 2011 dividend of 11.75 cents per share to shareholders of record on March 17. The payment is scheduled on March 31.
We believe the 7.5% increase in free cash flow in the recently concluded fourth quarter encouraged the company to boost its dividend. Telephone and Data Systems has a sound balance sheet, which provides flexibility and supports investments for future growth. At the end of fiscal 2010, the company had cash and short term investments of $402.9 million compared with $113.3 million in the prior year.
Fourth quarter results missed our earnings and revenue estimates but showed year-over-year improvements. Intense competition in both wireless and wireline businesses were responsible for less-than-expected numbers.
The company’s wireless subsidiary, U.S. Cellular Corp. (USM) reported a slight increase in revenue during the fourth quarter. Low churn and higher roaming revenues were partially offset by subscriber losses. Wireline revenue improved by virtue of growth in data revenue that was dampened by a decline in voice and network access revenues.
Despite the continuous erosion of access line, Telephone and Data Systems reported solid 2010 results with improved revenues and operating margins.
Telephone and Data Systems is committed to provide benefits to shareholders in the form of dividends and share buybacks. The company returned roughly $46.8 million and $47.2 million in 2009 and 2010, respectively, in the form of dividends. Telephone and Data Systems repurchased shares worth approximately $200 million, $177 million and $68 million in 2008, 2009 and 2010, respectively.
Currently, Telephone and Data Systems yields 1.44%, which is much lower than its largest rivals. Notably, Verizon Communications Inc. (VZ) and AT&T Inc. (T) yield a respective 5.40% and 6.10%.
We believe Telephone and Data Systems is well positioned for growth based on various competitive offerings, attractive Android-based smartphones sales, bundled and unlimited service plans, the expected launch of LTE services in 2012 as well as exceptional services in the form of “The Belief Project”.
However, future free cash flow levels are expected to be under pressure due to investments in business operations. Competition has intensified further with cable operators offering voice telephony service on high-speed Internet links via cable modems (Voice over Internet Protocol) and other Internet-based service providers contending for customers.
We are currently maintaining our long-term Neutral recommendation on Telephone and Data Systems supported by the Zacks #3 Rank (Hold).
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TELEPHONE &DATA (TDS): Free Stock Analysis Report
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