This preferred stock is issued by a telecom company whose earnings are expected to grow at an annual rate of more than 85% over the next five years.
Telephone and Data Systems, Inc. (TDS-PU)
From Income Securities Investor
Telephone and Data Systems, Inc. 6.625% Fixed Rate, Series UU, Cumulative Perpetual; Par $25.00; Annual Cash Dividend $1.65625; Current Indicated Yield 6.23%; Call Date 03/31/26 at $25.00; Yield to Call 5.01%; Pay Cycle 3e; Exchange NYSE; Ratings, Moody’s Ba3, S&P B; CUSIP 879433787
Telephone and Data Systems, Inc. provides wireless products and services that include high-speed Internet, TV entertainment, wireless, broadband, video, and voice to approximately 6.0 million customers nationwide. TDS is the parent company of U.S. Cellular and TDS Telecom.
This preferred may be redeemed on the 03/31/26 call date, or any time thereafter, at par plus any declared and unpaid dividends. This issue also has Change of Control (COC) language, allowing TDS to redeem the issue within 120 days of a COC event, (see prospectus for details).
The company reported relatively weak 3Q 2021 earnings results, with net income of $28.0 million or $0.24 per share, missing analysts’ $0.27 estimates. Net operating results were down sharply from $0.66 per share a year earlier, due to sluggish revenue growth, higher interest costs, lower pre-tax operating income, and increased income tax expense squeezing the bottom line.
On a positive note, TDS achieved excellent growth in broadband connections, helping to drive higher related operating revenues in the third quarter. The company continues to upsize its fiber program and has deployed fiber to approximately 40% of its wireline service addresses.
This preferred’ stock’s dividend distributions are qualified and taxed at the favorable 15%-20% rate. The issue is suitable for medium-risk taxable portfolios. Buy at $27.75 or lower for a 5.97% current yield and a 3.87% yield to call.
Martin Fridson, CFA, Income Securities Investor, isinewsletter.com, 800-472-2680, December 2021