The High Yield Of Telephone and Data Systems Preferred Is Attractive, But Not Entirely Safe

Telephone and Data Systems (TDS) preferred stock has delivered an 83% total return in under two years, primarily driven by the pending $4.4B sale of UScellular assets to T-Mobile. This sale will significantly reduce TDS's debt and bolster its balance sheet, improving the safety of the preferred dividend. However, TDS still faces high debt and ongoing losses, leading the analyst to maintain a hold rating on the preferred stock despite the improved, but not fully secure, 8.2% yield.

Analysis

Telephone and Data Systems' (TDS) preferred stock (NYSE:TDS.PR.V) has demonstrated significant appreciation, delivering an 83% total return in under two years, largely catalyzed by the anticipated $4.4 billion sale of UScellular assets to T-Mobile. This pending transaction is poised to materially de-lever TDS's balance sheet, thereby enhancing the safety of its preferred dividend. Despite these positive developments and a current yield of 8.2%, the company continues to grapple with substantial existing debt and persistent operational losses. Consequently, while the preferred dividend's security has improved, it is not yet considered entirely secure, leading to a maintained 'hold' rating on the preferred stock. The situation presents a mixed outlook where significant strategic M&A activity provides a pathway to a stronger financial position, yet underlying fundamental challenges remain pertinent.

Key Decisions for Investors

• Investors should recognize the enhanced security of the TDS preferred dividend resulting from the UScellular asset sale, but remain cautious due to the company's persistent high debt levels and ongoing losses.
• Carefully monitor the successful completion of the $4.4 billion UScellular asset divestiture to T-Mobile and the subsequent impact on TDS's debt reduction and overall financial health.
• Considering the current 8.2% yield and the analyst's 'hold' recommendation, existing holders may find it prudent to maintain their positions, while potential new investors should weigh the improved but not fully secured dividend against the company's remaining financial vulnerabilities before initiating a position.