Un-carrier T-Mobile (TMUS 0.57%) participated in the Morgan Stanley European Technology, Media, and Telecom Conference this morning, and CFO Braxton Carter had an exciting announcement: T-Mobile is looking at a potential share repurchase plan. Investors appear optimistic about the news, sending the stock up 5% as of this writing.
This comes after the company and Sprint jointly announced earlier this month that they had ended merger discussions after they were "unable to find mutually agreeable terms." With the megamerger off the table, T-Mobile is now focusing on its own capital structure.
Carter is the executive with the magenta cowboy hat. Image source: T-Mobile.
Time to return some capital
T-Mobile has been putting up strong free cash flow as it gobbles up subscribers from rival carriers and exercises cost discipline with capital spending. Free cash flow soared 59% last quarter to a record $921 million, for example. With all that cash coming in even after investing in its network, T-Mobile wants to return some of it to shareholders.
Large telecom companies are generally popular among income investors thanks to generous dividend yields, but T-Mobile is still in growth mode and doesn't think a dividend would be the best strategy. Dividends are an indefinite, long-term commitment, as income investors often place high value on consistent payouts that steadily rise over time.
Here's Carter at the conference:
And one of the things that we're really excited about is the potential in a rational way of starting to return capital to our shareholders. And we talked earlier in the year about a potential dividend, and the feedback that we got is, "I think you're a growth company, that really doesn't make sense." And unless you do the substantial dividend, you're really not going to attract that new type of yield investor that a dividend-type company would attract. So we're really focused on the buyback. And we're actually going into our board meeting at the end of this month and very excited.
Carter would not specify the possible size of a buyback program, but did say it could be "significant." T-Mobile is hoping to secure approval from the board within about two weeks, and parent company Deutsche Telekom is supportive of the idea. In fact, Deutsche Telekom, which currently owns approximately 64% of T-Mobile, might even participate as a buyer in order to increase its control over T-Mobile, according to Carter.
The biggest unknown for investors is the size of the proposed program, and whether or not it would be accretive or if it would merely offset ongoing dilution. Shares outstanding have been steadily rising, and ideally the program would be significant enough to actually reduce shares outstanding.
TMUS Shares Outstanding data by YCharts.
Either way, some type of capital return would be welcome news for investors, and it sounds like an announcement could be just a few weeks away.
