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Telephone & Data: Would-Be Dividend Aristocrat With Questionable Valuation

By Kurt Osterberg · On July 7, 2017

The Dividend Aristocrats list is a great place to begin looking for high-quality dividend growth stocks.

These stocks represent some of the ‘best of the best’ when it comes to dividend longevity.

The requirements to be a Dividend Aristocrat are:

Be in the S&P 500

Have 25+ consecutive years of dividend increases

Meet certain minimum size & liquidity requirements

You can see the full list of all 51 Dividend Aristocrats here.

Telephone & Data Systems, Inc. (TDS) is an interesting omission from the Dividend Aristocrats index.

The company has increased its annual dividend payment since 1975 – a period spanning 42 years. Telephone & Data certainly satisfies the dividend history requirement to be a Dividend Aristocrat.

So why has the company been excluded from this prestigious group of dividend stocks?

It must have something to do with the S&P 500 inclusion requirement or the liquidity requirement.

This article will discuss why Telephone & Data has been excluded from the Dividend Aristocrats index and analyze the investment prospects of this company in detail.

Business Overview

Telephone & Data Systems, Inc. is a telecommunications services company with a market capitalization of $3.1 billion.

The company provides cellular and landline services to more than 6 million customers across 34 states.

Telephone & Data’s business is dividend into two operating segments:

Cellular Operations (77% of 2016 revenue)

Telephone Operations (23% of 2016 revenue)

Telephone & Data was founded in 1969 and is headquartered in Chicago, Illinois. The company provides services through its two operating subsidiaries, TDS Telecom and U.S. Cellular.

Why The Exclusion?

There are two potential reasons why Telephone & Data has been excluded from the Dividend Aristocrats list.

The first is the failure to ‘meet certain minimum size & liquidity requirements’. These requirements are not specified, but it is possible that this is the reason why Telephone & Data has been excluded from the index.

Consider the following:

Telephone & Data has a market capitalization of $3.1 billion while the two smallest Dividend Aristocrats – Leggett & Platt (LEG) and Federal Realty Investment Trust (FRT) – have market capitalizations of $7.0 billion and $9.1 billion, respectively. Telephone & Data’s market capitalization is noticeably smaller than the smallest Dividend Aristocrats.

There are six Dividend Aristocrats who have had smaller average daily trading volumes over the past 30 days than Telephone & Data. Along with FRT, these include Sherwin-Williams (SHW), Clorox (CLX), McCormick & Co. (MKC), Cincinnati Financial (CINF), and Cintas (CTAS).