One Incredible Dividend Growth Stock to Buy Hand Over Fist Now

A stock that pays increasing dividends year after year is a good investment. Dividend growth stocks outperform the S&P 500 and pay higher dividends. T-Mobile (NASDAQ: TMUS) could raise dividends well. Although near their all-time high, shares remain a good value. Telecom company has a growing cash position that can support dividend growth for years.

T-Mobile stated in its SEC filing that it will increase its dividend by 10% yearly when it began in September. Though the dividend yield is 1.6%, investors' original investment yield could climb significantly over time. T-Mobile's telecom competitors offer greater yields but limited growth. Verizon shares yield 6.5%, but investors can expect annual rises of 5 cents, or 2%. AT&T has a comparable yield, but its payment hasn't changed since selling WarnerMedia.  

Importantly, T-Mobile can sustain 10% annual dividend growth for the foreseeable future. It declared a $19 billion capital return authorization, $16 billion of which remains as of 2023, along with its dividend. In 2024, only $3 billion will go to dividends. T-Mobile might retire $13 billion in shares this year, or 7% at its present pricing. That would put them more than halfway toward its yearly 10% dividend hike without boosting dividend spending.  

AT&T and Verizon cannot buyback shares since they are paying off vast debt and providing large dividends. That makes them less flexible than T-Mobile and may prevent them from growing as quickly.  

Financials promote dividend growth. Over the last few years, T-Mobile has leveraged its spectrum position from the Sprint merger into a strong network. It has a fixed asset that generates billions after spending extensively in its network.  

It earned $13.6 billion in free cash flow last year. That number should reach $16.6 billion this year. It estimates capital expenditures to be around $9 billion, at the bottom of its $9 billion to $10 billion long-term forecast for yearly spending. Still, sales growth and operating margin improvement promote long-term growth.

For context, AT&T forecasts $17–$18 billion in free cash flow this year. Verizon hasn't forecast free cash flow this year. It earned $18.7 billion last year.  T-Mobile consistently leads the industry in net postpaid customer additions, including important postpaid phone subscribers. Maintaining average revenue per user while growing account revenue. More family plans mean stickier ones. Wireless service revenue grows slowly and steadily.

Our churn rate has dropped significantly in recent years, reflecting that trend. T-Mobile's fourth-quarter churn rate was greater than AT&T and Verizon's, despite showing signs of improvement. If T-Mobile continues to outperform its competitors in churn, its net additions might gap wider from AT&T and Verizon.   

Management estimates T-Mobile shares trade at 11.5 times 2024 free cash flow. That's higher than AT&T (7 times free cash flow) and Verizon's. However, the premium is worthwhile.  

T-Mobile is well-positioned to grow its market share. Its capital-light business and better balance sheet allow it to retire shares and support a healthy dividend growth rate. T-Mobile doesn't pay huge dividends like AT&T or Verizon, but it's the best at delivering good financials and returning extra cash to shareholders. Buy T-Mobile if you want your dividends to rise more than a few pennies a year.  

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