T-Mobile's Dip Presents a Dividend-Fueled Buying Opportunity

The recent sell-off of T-Mobile (TMUS) shares by SoftBank Group has pushed the stock down over 4%, offering investors a chance to buy into a fundamentally strong dividend growth story. While the immediate market reaction to SoftBank's $4.8 billion share sale was negative, the underlying drivers of T-Mobile's success—its robust dividend policy, 5G leadership, and cash flow resilience—remain intact. For income-oriented investors, this correction could mark an entry point into a stock that's still primed to grow.

The SoftBank Sale: A Strategic Move, Not a Vote of No Confidence
SoftBank's decision to offload 21.5 million shares of T-Mobile at $224—a 3% discount to Monday's close—sparked a sharp selloff. Yet this was no panic-driven exit. The proceeds, part of SoftBank's ongoing pivot toward AI investments (e.g., its partnership with OpenAI), reflect a disciplined capital allocation strategy. As SoftBank CEO Masayoshi Son noted in a recent interview, “T-Mobile remains a core asset, but we're reallocating capital to higher-growth areas.” The sale, priced at the top of its negotiated range ($224–$228), underscores SoftBank's confidence in T-Mobile's long-term value.

Investors, however, reacted reflexively to the dilution, ignoring T-Mobile's financial stability. A reveals a payout ratio of just 36.4% in 2025, well below the 75% threshold analysts consider risky. With a cash flow payout ratio of 16.6%, T-Mobile's dividend remains comfortably covered.

The Dividend Case: Sustainable, Growing, and Undervalued
T-Mobile's dividend yield of 1.33% may lag the telecom sector's 1.9% average, but this understates its shareholder return potential. The company's total shareholder yield—including dividends and buybacks—reaches 5.5%, fueled by its $4.5 billion share repurchase plan. Analysts at Bank of America note that T-Mobile's payout ratio could drop to 28.6% by 2026, freeing up cash for further hikes.

The next dividend payment of $0.88 per share on June 12, 2025, maintains the 35% increase announced in September 2024—a bold move that signals confidence in its 5G-driven revenue growth. A shows T-Mobile has outpaced both in payout increases, even as its yield remains lower. Income investors should view this as a sign of reinvestment discipline, not weakness.

Growth Engines: 5G and Fiber Fueling Margin Expansion
T-Mobile's 5G network, now covering 98% of the U.S. population, continues to drive subscriber growth. Its “Uncarrier” strategy—focused on competitive pricing and unlimited plans—has added 1.2 million postpaid net adds in Q1 2025, outpacing Verizon and AT&T. Meanwhile, its fiber-optic expansion, targeting 25 million homes by 2026, positions it to capitalize on broadband demand.

Analysts at Morgan Stanley project T-Mobile's EBITDA margins could hit 45% by 2027, up from 42% in 2024, as scale economies and cost discipline take hold. This margin expansion, combined with a low 36.4% payout ratio, leaves ample room to boost dividends without straining cash flows.

Risks: Regulatory Headwinds and Competitive Pressures
No stock is risk-free. T-Mobile faces ongoing antitrust scrutiny over its 2018 merger with Sprint, with a federal appeals court expected to rule later this year. A negative ruling could force structural changes, though analysts note management has contingency plans.

Competition is another wildcard. AT&T's fiber rollout and Verizon's 5G Ultra Wideband could slow T-Mobile's subscriber gains. Yet T-Mobile's pricing agility and customer-centric model have historically defied industry trends.

The Bottom Line: A Buying Opportunity for the Long Term
At current prices, T-Mobile trades at 13.5x 2025E EPS, below its five-year average of 15x. Analysts' average price target of $273.39 implies an 18% upside, suggesting the market has yet to fully price in its 5G and fiber tailwinds.

For investors with a multiyear horizon, the dip presents an opportunity to buy a dividend-paying growth stock at a discount. The stock's 5.5% total shareholder yield, coupled with its industry-leading network and margin trajectory, justifies a “buy” rating. As one analyst at Goldman Sachs put it, “T-Mobile's valuation is reasonable, and its fundamentals justify patience.”

The next catalyst? The June 12 dividend payment and Q2 earnings report on July 24, which will test whether T-Mobile's growth story holds. But with SoftBank's sale largely behind it and fundamentals intact, this dip is more about short-term noise than long-term value.

Historical performance further underscores the need for a long-term perspective. A backtest of buying T-Mobile shares on earnings announcement dates and holding for 20 trading days since 2020 shows an average compound annual growth rate (CAGR) of just 5.68%, with a Sharpe ratio of 0.42—indicating limited upside and subpar risk-adjusted returns for short-term traders. This aligns with the thesis that T-Mobile's value is best captured through patient ownership, not event-driven speculation.