U.S. Cellular And Telephone and Data Systems: Why The Preferreds Are Still A Buy

2025-03-20 17:18:18 ET

Summary

• Telephone and Data System's asset sales to TMUS, Verizon, and AT&T will transform its balance sheet, with TMUS assuming $2 billion of USM's debt.
• TDS preferreds, particularly its VV series, offer a significant 28% discount to liquidation value and an 8.3% yield on cost.
• The company still owns 4,409 towers and 30% of its spectrum assets. The $4.4 billion TMUS deal is set to close in 2025.

I've owned Telephone and Data Systems, Inc. ( TDS ) 6.00% Series VV Cumulative Preferreds, Telephone and Data Systems, Inc. 6% DEP PFD SR VV ( TDS.PR.V ) since late 2023, first covering the ticker in spring 2024 when I recommended the security as a buy. This was on the back of TDS initiating a sales process for assets held by the United States Cellular Corporation ( USM ), the fourth-largest full-service wireless carrier in the US. The company has since announced asset sales covering spectrum assets to T-Mobile US, Inc. ( TMUS ), Verizon Communications Inc. ( VZ ), and AT&T Inc. ( T ). TMUS acquired for $4.4 billion USM's wireless operations and roughly 30% of its spectrum assets across several spectrum bands a year ago in March 2024 with TDS guiding for the transaction to close by the summer of 2025. TDS is USM's majority shareholder, owning 83% of the combined total of the outstanding common shares....

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