T-Mobile Will Start to Pay a Dividend. Why the Stock Is Dropping.

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Wireless provider

T Mobile

America does Start paying a share For the first time in the fourth quarter, joining the rivals

AT&T

And

Verizon connections
.

The stock market isn’t too happy about the news, even though share buybacks remain T-Mobile’s main way to return cash to shareholders.

On Wednesday, T-Mobile (ticker: TMUS ) said its board of directors approved a $19 billion shareholder return program, including $750 million in quarterly dividends and $15.25 billion in share buybacks through the end of 2024. A quarterly payment of around 63 cents per quarter based on T-Mobile share count.

T-Mobile stock recently traded at $135, representing an annualized dividend yield of nearly 1.9 percent. The company said it expects dividends to increase by about 10 percent each year.

The yield pales in comparison to that of Verizon ( VZ ) and AT&T ( T ) shares, at 7.5% and 7.6%, respectively.

T-Mobile stock gave up small gains in afternoon trading on Wednesday after the news, to trade up 2.8% at around 2:45 pm ET. of

S&P 500
There was a decrease of 0.8%. Investors may prefer that T-Mobile focus on shareholder buybacks.

T-Mobile management in 2010 It expects to return a total of $60 billion to shareholders by the end of 2025 in the financial leverage it created with Sprint in 2020. It has already spent about $12 billion on acquisitions, buying back 7 percent of its stock. T-Mobile’s previous stock buyback program, announced in September 2022, was a buyback worth up to $14 billion. Its market capitalization is about $159 billion, larger than both Verizon and AT&T.

In late July, T-Mobile hinted at a possible change in its distribution policy, with a subtle wording change. 10-Q quarterly filing with the Securities and Exchange Commission.

A dividend increase can increase the universe for investors with productivity-focused obligations, increasing demand for the stock. It also suggests T-Mobile is growing a bit, no longer a startup nipping at the heels of Verizon and AT&T.

But there are downsides: Dividends can be less than a tax refund, and they also make T-Mobile stock more valuable to use as currency in a possible merger or acquisition.

“As long as the stock price remains low, the company should use excess cash to buy back shares,” New Street analyst Jonathan Chaplin wrote last month. “With every share they buy below intrinsic value, they create value for their shareholders. They should only consider a dividend when they believe the stock is approaching intrinsic value.”

Wall Street analysts collectively see the stock as definitely undervalued: 90% of T-Mobile stocks have a buy or equivalent rating, and the average price target is $175—30% above current levels. The shares trade at 14.7 times expected earnings for the coming year, an average of 31 times over the past five years.

T-Mobile stock has lost 4% so far this year, compared to an 18% return for the S&P 500. Verizon and AT&T lost 9% and 17%, respectively, year-to-date.

Write to Nicholas Jasinski at [email protected]