$19B shareholder return program announced by T-Mobile

T-Mobile announced a new shareholder return application on Wednesday, September 6th 2023, so as to see the agency go back as much as $19 billion to shareholders via stock buybacks and dividends over the subsequent 3 years. The wireless provider says this program demonstrates its commitment to turning in shareholder cost following the crowning glory of its merger with Sprint in advance this year.

Key Details of T-Mobile’s Shareholder Return Program

T-Mobile plans to repurchase $14 billion of its common inventory, with $2 billion deliberate for 2023, $6 billion in 2024, and $6 billion in 2025.
The business enterprise also introduced a dividend software, with plans to pay $1.6 billion in annual dividends, or $zero.60 per share quarterly, beginning in 2023.
Combined with the buybacks, T-Mobile expects to go back a complete of $19 billion to shareholders from 2023 thru 2025.
This represents one of the biggest shareholder return packages inside the wireless industry in latest years.
T-Mobile stated the return software demonstrates self-belief inside the future unfastened coins flow era of the mixed T-Mobile/Sprint employer.

Shareholder Return Program at T-Mobile: Reasons for its Success

There are several factors motivating T-Mobile to enact such a large shareholder return initiative:

Excess cash flow – The merger with Sprint gave them greater scale and is expected to generate significant free cash flow, even after paying down debt from the acquisition. This gives them more flexibility to return cash to shareholders.
Competitive pressure – Major rivals AT&T and Verizon both offer dividends, so T-Mobile is adopting a dividend to remain competitive. The large buyback also helps boost its stock and total return to shareholders.
Support stock price – T-Mobile’s stock had fallen nearly 20% from its early 2021 highs prior to this announcement. The buyback gives some underlying support to its share price.
Return merger synergies – they claimed the Sprint merger would unlock $43 billion in synergies. This program shows they returning some of those cost savings directly to shareholders.

Impact on T-Mobile’s Financial Position

While the shareholder return program is substantial, T-Mobile believes it can fund it while still investing in its business:

T-Mobile expects to have $9.4 billion in free cash flow in 2023 after deducting merger-related costs. This provides plenty of excess cash even after funding the initial $3.6 billion in shareholder returns next year.
The company forecasts being able to pay down $11 billion – $12 billion in debt annually through 2025, while maintaining a target leverage ratio of 2.0x to 2.5x net debt to EBITDA.
They says its business plan supports accelerated network expansion, including deploying 5G to 85% of Americans by 2024 and 90% by 2025. Investment in network coverage and capacity remains a top priority.
Synergies from the Sprint deal should ramp up over time, providing greater free cash flows to fund these initiatives.

Response by Analysts and Investors

Analysts and investors responded positively to T-Mobile’s plan:

T-Mobile stock rose 2% on the news, as the buyback provides firm support for its share price despite recent weakness.
Analysts praised the “balanced approach” between debt paydown, network investment, and shareholder returns. This helps T-Mobile appeal to a broad set of investors.
The program was viewed as a “prudent use of cash” from the Sprint merger and supports T-Mobile’s argument that the deal will benefit shareholders.
Return of cash to shareholders could make T-Mobile shares more appealing in the eyes of investors, especially with a healthy dividend.
Some analysts think T-Mobile didn’t go far enough and that a larger buyback or higher dividend would be even more impactful.

Competitive Response from AT&T and Verizon?

The large shareholder return program from T-Mobile could put pressure on competitors AT&T and Verizon to re-examine their own capital return plans.

AT&T pays a 5% dividend yield, exceeding T-Mobile’s 2%, but could increase buybacks in response.
Verizon’s 5% dividend and buyback may need expanding after T-Mobile’s move.
However, substantial 5G investment plans may limit near-term shareholder returns for AT&T and Verizon.
The merger of Sprint and T-Mobile improved the latter’s competitive position and financial resources. AT&T and Verizon may need their own strategic deals to unlock higher shareholder returns.

Outlook for T-Mobile in Driving Future Growth

While returning substantial cash to shareholders, T-Mobile also reiterated confidence in its long-term growth outlook:

It continues to expect industry-leading postpaid phone net customer additions, projecting 2.5 million – 3.5 million per year from 2023 – 2025.
T-Mobile forecasts EBITDA growing from $26B in 2022 to $30B in 2023, then steadily rising to $41B-$43B in 2025 as Sprint merger synergies increase.
With its network reaching nearly 300 million Americans today, coverage improvements will support continued market share gains.
Upgrades to 5G and mid-band spectrum should allow T-Mobile to lead in 5G performance and availability.
Growing “fixed wireless” home broadband service provides an adjacent growth opportunity beyond the core wireless subscription business.
Services like streaming content, gaming, FinTech, and IoT solutions offer potential new revenue streams as they diversifies as a digital provider.

With strong subscriber momentum, 5G leadership, and new services in the pipeline, T-Mobile aims to drive healthy growth even while returning $19 billion to shareholders. The program underscores management’s confidence in the future as an edgier competitor to AT&T and Verizon.

Conclusion: A Clear Win for T-Mobile Investors

T-Mobile fulfills its promise to reward shareholders with a new $19B program using excess Sprint merger cash. They enacts an attractive telecom capital return program via $14B in targeted buybacks and a healthy dividend.

With its 5G leadership and strong subscriber momentum, They are confident in returning cash and investing for growth. Shareholders clearly emerge as winners from this deal as they collect a healthy yield and benefit from stock repurchases. For T-Mobile, generous shareholder returns are affirmation of a deal successfully completed and optimism in remaining an industry maverick.

FAQ’s

What did T-Mobile announce?

T-Mobile announced a $19 billion shareholder return program that includes $14 billion in share buybacks and $1.6 billion in annual dividend payments through 2025.

Why is T-Mobile enacting this program?

The program returns excess cash to shareholders following T-Mobile’s merger with Sprint. It also aims to boost T-Mobile’s stock price and investor returns.

How will the buybacks work?

T-Mobile plans to shop for lower back $2 billion in 2023, $6 billion in 2024 and $6 billion in 2025. This will reduce its total shares outstanding.

What about the dividends?

Upon reaching the percentage in 2023, T-Mobile can pay a quarterly dividend of $0.60.. This equates to $1.6 billion in 12 months.

How is T-Mobile funding this program?

The Sprint merger synergies have provided T-Mobile with substantial excess free cash flow, even after paying down merger debt. This enables the large return of capital.

How have investors responded?

Investors welcomed the plan, sending T-Mobile shares 2% higher. Analysts saw it as a balanced use of merger-related cash.

Does this impact T-Mobile’s growth plans?

No, they reiterated forecasts for strong subscriber and profit growth, while expanding its 5G network coverage. Shareholder returns will happen alongside continued investment.

Get up-to-date on what’s happening in Business. Click Here.