Why Swisscom (VTX:SCMN) Delivers Strong Shareholder Returns Despite Declining Earnings

Swisscom (VTX:SCMN), a cornerstone of Switzerland's telecommunications sector, has long been a subject of intrigue for investors. Despite a backdrop of declining earnings, the company has consistently delivered robust shareholder returns. This paradox-sustaining strong total shareholder return (TSR) amid financial headwinds-can be attributed to a disciplined dividend policy, strategic capital allocation, and operational efficiency. By dissecting Swisscom's approach to capital distribution and reinvestment, we uncover the mechanisms that underpin its resilience.

Dividend Stability: A Pillar of Shareholder Value

Swisscom's dividend policy is a cornerstone of its shareholder value proposition. From 2020 to 2025, the company has maintained an annual dividend of CHF 22.00 per share, a rare feat in an industry prone to volatility. While this consistency has bolstered investor confidence, it has also led to a rising payout ratio, which reached 91.3% in 2025. This high ratio suggests that earnings are no longer fully covering dividend payments, a red flag for some analysts. However, the company's ability to sustain this payout reflects its prioritization of shareholder returns, even as earnings compress.

The dividend yield, which fluctuated between 3.70% and 4.65% during this period, has remained attractive relative to broader market benchmarks. For income-focused investors, this yield, combined with the company's track record of uninterrupted payouts, creates a compelling case for inclusion in a diversified portfolio.

Strategic Capital Allocation: Balancing Growth and Efficiency

Swisscom's capital allocation strategy is a masterclass in balancing long-term growth with short-term efficiency. In 2024 alone, the company invested CHF 1,712 million in network infrastructure, focusing on expanding its fiber-optic network to achieve gigabit-speed internet coverage across Switzerland by 2035. These investments, while capital-intensive, are critical for maintaining competitive differentiation in a saturated market.

Simultaneously, Swisscom has emphasized cost discipline. In the first half of 2025, the company reduced capital expenditures by 7.9%, demonstrating its ability to optimize spending without compromising long-term objectives. This dual focus on growth and efficiency ensures that cash flow remains sufficient to fund dividends while advancing strategic priorities.

Notably, Swisscom's capital allocation has historically included aggressive share buybacks. Between 2002 and 2006, the company returned CHF 10.4 billion to shareholders through buyback programs. While no specific buyback plans are outlined for 2024–2025, the company's emphasis on dividends and operational efficiency continues to prioritize shareholder returns.

Total Shareholder Return: The Power of Reinvestment

Swisscom's TSR calculation methodology underscores the compounding power of reinvested dividends. The company defines TSR as the sum of share price appreciation and reinvested dividends over a given period. For example, in 2025, the stock closed at CHF 568.50, reflecting a 13.47% annual increase. When combined with the CHF 22.00 dividend, this creates a dual-income stream that enhances returns for long-term holders.

The reinvestment of dividends, particularly on ex-dividend dates, amplifies this effect. By compounding returns through reinvestment, Swisscom ensures that even modest stock price gains are magnified over time. This approach aligns with best practices in TSR optimization and reinforces the company's commitment to delivering value beyond mere earnings growth.

Financial Discipline and Future Outlook

Swisscom's 2025 financial outlook further solidifies its ability to sustain shareholder returns. The company projects revenue of CHF 15.0–15.2 billion and EBITDAaL of approximately CHF 5 billion. These figures, while modest, reflect a stable operating environment. Additionally, the company plans to propose a dividend of CHF 26 per share in 2025, contingent on meeting financial targets. This forward-looking guidance signals confidence in the sustainability of its payout, even as earnings face downward pressure.

Innovations such as the launch of "beem" and "myAI" services are expected to drive incremental revenue, while the integration of Vodafone Italia aims to strengthen the company's international footprint. These initiatives, coupled with cost-cutting measures, position Swisscom to maintain its dividend trajectory despite macroeconomic challenges.

Conclusion: A Model of Prudent Capital Management

Swisscom's ability to deliver strong shareholder returns despite declining earnings is a testament to its disciplined capital allocation and dividend policy. By prioritizing infrastructure investments, operational efficiency, and reinvested dividends, the company has created a self-reinforcing cycle of value creation. For investors, this strategy offers a blueprint for navigating a low-growth environment: focus on sustainable cash flow, strategic reinvestment, and a relentless commitment to shareholder returns.