Finding a company that can consistently increase its dividend year after year is the ultimate investment for many. But established dividend payers can often provide shareholders with nominal raises just to keep their streak of annual dividend bumps alive. An extra penny per share every quarter isn't going to move the needle for most investors.
The real value for dividend growth investors is finding a company that's on track to give its shareholders substantial pay raises for years to come. That period is usually well before a company becomes a Dividend Champion, a stock that raises dividends for 25 straight years. Finding a company with great financial stability and a commitment to capital returns early on can provide double-digit dividend raises for years to come.
The telecom industry is full of big dividend payers like Verizon Communications and AT&T. Both have long streaks of growing their dividends. AT&T once held a streak of 36 years before cutting its dividend amid a restructuring in 2022. Verizon holds an active streak of 18 years, and it will likely make it 19 this year. But another telecom player just started paying a dividend in 2023, and it looks like it has a long runway of dividend increases in front of it.
Here's why dividend growth investors should take a closer look at T-Mobile US (TMUS 0.82%).
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From underdog to top dog
T-Mobile positioned itself as the "Un-carrier" over a decade ago, marketing itself as more customer friendly than AT&T or Verizon. Excellent marketing, low prices, and steady investments in its network led to strong customer additions throughout the mid- to late-2010s.
Today, T-Mobile is far from the underdog. A merger with Sprint in 2020 left it with a massive portfolio of wireless spectrum licenses that gave it a huge leg up in building out its 5G network. It hasn't squandered the opportunity, and T-Mobile's 5G network has better coverage and speed than its competitors. It's also used the excess capacity on its network to offer customers home internet service using fixed-wireless modems, competing with both AT&T and Verizon as well as traditional internet service providers.
As a result, T-Mobile no longer competes solely on its customer service and pricing. That was made clear in its most recent earnings report. T-Mobile added 830,000 postpaid phone customers, the best second-quarter result in history. Total postpaid customers (for any connected device) grew 1.7 million. By comparison, AT&T added 401,000 postpaid phone subscribers and Verizon lost 51,000.
And what makes those subscriber additions even more impressive for T-Mobile is that it came with an average increase in revenue per user of 3.2% for postpaid phone customers. The average revenue per account grew more than 5%, indicating T-Mobile is successfully selling additional services to its customers like home internet.
Indeed, T-Mobile's home internet service has grown to 7.3 million, perfectly matching management's goal of 7 million to 8 million subscribers by this year, set in 2021. With the addition of fiber assets from its acquisition of Lumos, T-Mobile is setting its sights on 12 million subscribers by 2028.
The company also recently closed its acquisition of UScellular, adding another 4 million-plus phone subscribers to its leading position. If it follows the same playbook as it did after acquiring Sprint's customers, it should be able to improve retention while increasing prices for those subscribers. T-Mobile also gains access to UScellular's spectrum licenses, giving it more assets to build its leading network on.
The start of a dividend champion
T-Mobile is showing very good financial strength despite intense competition from AT&T and Verizon. That should ultimately translate into a significant dividend for the company.
Currently, T-Mobile shares yield just 1.5% based on its last four quarterly dividend payments. But after initiating the dividend in September of 2023 and announcing its first raise in September of last year, investors should expect another dividend hike in September this year. There's plenty of room to increase the dividend.
T-Mobile is already committed to substantial amounts of capital returns. Management expects cumulative capital returns of about $50 billion from late 2024 through 2027. That number could climb higher, as it expects to set aside an extra $20 billion for acquisitions and capital investment opportunities.
For now, though, the vast majority of those capital returns are made through share repurchases. Last quarter, T-Mobile paid out about $1 billion in dividends, but repurchased $2.5 billion worth of shares. But focusing on share repurchases today will enable bigger dividend yields in the future, as T-Mobile spreads its total dividend payment across fewer shares.
When T-Mobile initiated its dividend in 2023, it said it plans to increase the dividend by around 10% annually. Last year, it gave shareholders a 35% raise. Another super-sized raise isn't out of the question, as free cash flow has climbed 15.5% through the first half of 2025. That said, management expects only modest improvements in free cash flow from here, growing to between $18 billion and $19 billion in 2027 from $17.8 billion at the mid-point of its updated 2025 guidance.
Still, T-Mobile has the cash flow to support a growing dividend, and its position in the telecom industry is only getting stronger. Considering it's currently paying out a small portion of its cash as dividends, there's a lot of room to grow the payout ratio and keep the dividend hikes coming year after year. While forecasting 23 years into the future is impossible, it's safe to say dividend growth investors can find a lot to like in T-Mobile shares today.
