Telecom investors are often attracted to the strong dividends many companies in the industry pay. But you might be better off ignoring the dividends and investing in another stock instead.

T-Mobile US (TMUS -0.06%) holds a lot of appeal versus its dividend-paying competition, AT&T (T 1.02%) and Verizon Communications (VZ 1.17%). While the latter pay shareholders dividends of roughly 7.5% these days, T-Mobile doesn't pay investors anything for holding shares.

But even without a dividend, T-Mobile could end up returning more cash to shareholders over the next few years.

How T-Mobile's paying its shareholders

T-Mobile isn't planning to pay a dividend anytime soon, but it's spending a lot of money on share repurchases.

A share repurchase can be a more tax-efficient way of returning excess cash to shareholders. Instead of paying a sum to each and every shareholder, management will simply buy out shareholders looking to unload their stock. The net result is fewer shares outstanding, giving existing shareholders a greater stake in the company. That makes each share more valuable, so, all else equal, the share price increases.

T-Mobile's board authorized a $14 billion share repurchase program last year. It's since bought back nearly $12 billion of T-Mobile stock. But investors should expect a new, higher authorization announcement later this year. T-Mobile's long-term plan is to repurchase $60 billion worth of stock between 2023 and 2025.

Importantly, T-Mobile has the cash flow to support the aggressive buyback. Its adjusted free cash flow over the first half of 2023 was $5.3 billion. That's actually better than AT&T, which had a dismal first quarter. More importantly, investors can expect T-Mobile's free cash flow to expand substantially over the next couple of years as it no longer has to pay merger-related expenses and as it leverages its 5G network buildout.

Investors should expect T-Mobile to make good on its promise to return an additional $48 billion to shareholders by the end of 2025 bolstered by strong free cash flows.

How much are AT&T and Verizon paying?

Despite their substantial dividends, AT&T and Verizon are actually returning less cash to shareholders than T-Mobile.

AT&T's dividend payments will total just over $8 billion in 2023. Verizon will pay out roughly $11 billion. Both will fall short of T-Mobile's total cash return to shareholders.

Neither AT&T nor Verizon currently has a share repurchase program. That's because they're both mired in debt from previous acquisitions that didn't pan out. Instead of buying back shares, they both have to pay down their substantial debt.

AT&T said it plans to revisit share repurchases once it reaches its goal of a net debt-to-EBITDA ratio of 2.5x. As of the second quarter, management doesn't expect to hit that level until mid-2025. Verizon is waiting for a 2.25x ratio between net debt and earnings before interest, taxes, depreciation, and amortization. As of the end of the second quarter, that number stood at 2.6x.

With much of their free cash flow going toward deleveraging, AT&T and Verizon are unable to return as much to shareholders as T-Mobile. And even adjusting for T-Mobile's bigger market cap, the total cash return to shareholders as a percentage of the stock price is higher for T-Mobile.

The new leader in telecom

Not only is T-Mobile set to return more cash to shareholders than AT&T or Verizon, it's also outperforming them operationally. That should give investors confidence in its cash return plans.

T-Mobile continues to add more valuable postpaid wireless customers than its competitors. Meanwhile, its home internet service remains on pace to reach its goal of between 7 million and 8 million customers by 2025.

Also, T-Mobile's 5G network buildout remains about two years ahead of the next closest competitor, which should allow T-Mobile to take market share in areas it hasn't competed well in before, such as business and rural areas.

All signs point to strong free-cash-flow growth over the next few years. Meanwhile, AT&T's and Verizon's free-cash-flow expectations have been called into question. Even investors primarily interested in cash returns to shareholders should skip over the big dividend payers and take a look at adding T-Mobile to their portfolio.