Telephone & Data Systems Offers 10% Return Potential via Calls

Investors eyeing Telephone & Data Systems Inc (TDS) may find a covered call strategy appealing. The stock could yield a total of 10% annualized return through careful premium collection, offset by potential upside loss at a $50 strike price.

Date: 27-01-2025

AI Rating: 7

Overview of TDS Investment Strategy

Telphone & Data Systems Inc (TDS) presents a covered call opportunity for shareholders looking to increase returns beyond the modest 0.5% dividend yield. By selling a January 2026 covered call at the $50 strike price, investors can collect a premium of $3.30. This premium significantly boosts potential returns with a total possible annualized return of 10%, provided the stock does not get called away.

Understanding Potential Gains

If TDS shares rise to the $50 strike price, shareholders would realize a total return of 49.1%. However, this return is contingent on the stock climbing nearly 39.9% from its current price. While such scenarios can yield excellent returns, they also involve substantial risk if the stock underperforms.

Dividend Yield Considerations

The report also notes that dividends at TDS are unpredictable. Investors need to analyze TDS's historical dividend trends to judge the reliability of the current 0.5% yield. If TDS continues to demonstrate consistent profitability, it could bolster investor confidence regarding dividend stability.

Volatility and Risk Assessment

The volatility of TDS stock has been calculated at 59%, which indicates a high level of price fluctuation. This significant volatility should be a hallmark consideration for investors strategizing around options and covered calls, as it impacts risk assessment on potential price movements.

Overall, the analysis underlines both the opportunities and risks when considering TDS's current pricing, dividend history, and volatility in assessing stock performance. Investors should weigh these factors carefully before making decisions based on the proposed trading strategy.

Stocks: TDS