Why TDS is a Dividend Dividend Darling in a Telecom Turnaround

Investors often seek companies with unshakable dividend discipline—even amid strategic overhauls. Telephone and Data Systems, Inc. (NYSE: TDS) fits this mold perfectly, offering a rare blend of 41 years of consecutive dividend growth and bold moves to reposition itself for the future. Let’s dig into why this telecom stalwart could be a value investor’s dream right now.

The Dividend Machine That Keeps Chugging

TDS has been a dividend legend since 1974, with increases every year since 1975—a rare feat in today’s volatile markets. As of 2025, the annualized forward dividend yield stands at 1.9%, backed by a payout ratio of just 23% of FY1 EPS, leaving ample room for growth. Even as the company pivots its business model, management has prioritized shareholder rewards. For example, the pending sale of UScellular to T-Mobile (expected to close mid-2025) will likely lead to special dividends for shareholders, further boosting returns.

This dividend sustainability is critical in value investing. TDS’s track record shows it can grow payouts even during transitions. Take its 2024 Q1 net loss of $474 million—yes, that’s a hit—but the dividend kept flowing. Why? Because its core telecom businesses (UScellular and TDS Telecom) generate steady cash flows, and the UScellular sale will inject liquidity.

Strategic Shifts to Fuel Growth

TDS isn’t just a dividend relic; it’s actively transforming. Here’s the playbook:
1. Focus on Fiber Dominance: TDS Telecom has hit 50% fiber coverage of its service area, delivering ultra-fast broadband (up to 8 Gbps). With 2,800 residential broadband net additions in Q1 2025 and a 90% customer retention rate in fiber markets, this division is becoming a cash cow.
2. Leverage Tower Assets: Third-party tower rentals rose 6% YoY, a low-risk, high-margin business.
3. Exit Non-Core Assets: Selling UScellular and non-strategic assets like OneNeck IT Solutions frees capital for growth. The $1 billion from UScellular’s divestitures since 2020 already hints at what’s to come.

The Numbers Tell a Story of Resilience

While Q1 2025 revenue dipped 9% YoY to $1.15 billion due to UScellular divestitures, free cash flow improved to $47 million—a stark turnaround from -$20 million in Q1 2024. The adjusted OIBDA guidance of $310–350 million for 2025 suggests profitability is stabilizing. Add in a $2.4 billion market cap against $5.09 billion in trailing revenue, and TDS looks undervalued.

Risks? Sure—But Manageable

• Regulatory Delays: The UScellular sale to T-Mobile faces approval hurdles, but TDS has priced this risk into its timeline.
• Fiber Expansion Costs: The $375–425 million 2025 capex plan is hefty, but fiber’s scalability justifies the spend.
• Earnings Volatility: The net loss in Q1 2025 was a blip, not a trend. Once the sale closes, earnings could rebound sharply.

Why Act Now?

TDS is at a crossroads. The UScellular sale isn’t just a fire sale—it’s a strategic pivot to a fiber-first future. With shares trading at $21.11 (up 10.21% YTD in 2025), the stock is still undervalued relative to its assets and dividend power.

Final Take: Buy the Dividend, Bet on the Turnaround

TDS isn’t just surviving—it’s reinventing itself. The dividend record is a testament to management’s discipline, while the fiber push and UScellular exit position it to thrive in the telecom golden age of 5G and broadband. For value hunters, this is a buy now, collect later opportunity. Don’t let the current transition cloud the long-term picture: TDS is a dividend stalwart with growth on tap.

Action Item: Go long TDS ahead of the UScellular sale close. The dividend plus potential special payouts could deliver double-digit total returns by year-end 2025.