This tech stock just raised its dividend by 35%, and analysts are raising their price targets

While investors may love their dividends, high-yielding stocks often come with very limited risk or growth prospects.

But if one can find a stock with a decent yield that can go up a lot in the future, that’s a ticket to higher payouts given five, 10 or 20 years or more.

The best growth today is found in the tech sector, but most tech companies don’t pay very much in dividends. However, one winning company just announced a massive 35% increase in its payout following Analyst Day, and analysts see even better things ahead.

T-Mobile is becoming a dividend growth monster

After Wednesday’s Capital Market Day, T-Mobile (TMUS -0.10%) announced a staggering 35% increase in its dividend. T-Mobile just introduced a shareholder dividend last year for the first time, and it started out pretty small compared to peers. Verizon (See 0.89%) and AT&T (T 0.84%). T-Mobile’s dividend yield stood at 1.32% at today’s price, but the big increase will take it to 1.76%. That’s still a far cry from Verizon’s 6.2 percent or AT&T’s 5.1 percent. However, as can be seen, the yield on a stock is much more than the dividend yield:

TMUS data on 5-year total returns (daily) by YCharts

T-Mobile has earned a massive 150% over the past five years, including dividends. Meanwhile, AT&T returned just 12% and Verizon shareholders actually saw 4% declineincluding dividends.

Moreover, T-Mobile has returned much more to shareholders recently in the form of share buybacks. T-Mobile’s shareholder return, which incorporates dividends and buybacks, totaled 6.11% over the past 12 months, nearly as high as AT&T’s 6.9%.

T-Mobile is the top grower of the telecom group

The difference in shareholder returns is attributed to T-Mobile outperforming its peers, largely due to its transformation as the industry transitioned to 5G. T-Mobile had previously been a discount brand that thrived on lower prices but an inferior network. However, the Sprint acquisition in 2020, along with some smart spectrum purchases, gave T-Mobile a network advantage as the industry transitioned from 4G to 5G.

TMUS EPS diluted (TTM) data by YCharts

And more growth to come

T-Mobile also presented its Capital Markets Day on Wednesday, where it outlined its continued growth strategy. These include:

1. Maintaining the leadership of his network: It does it by investing in an AI-powered network, through a collaboration with Nvidia, Ericsson and Nokia.
2. Continuation with market share: Focuses on where it’s still underpenetrated, including small and rural cities, business accounts, and about 30 of the top 100 metro markets where it’s not already a leader.
3. Increasing growth in broadband: T-Mobile launched its 5G wireless broadband offering just a few years ago, but has already reached 5.6 million broadband customers to date. By 2028, this growth will reach 12 million and then between 12 and 15 million by 2030. This will be through both wireless and fiber to the home, which is a new initiative for the company.
4. Customer service collaboration with OpenAI: T-Mobile is collaborating with OpenAI on IntentCX, which is an AI-based predictive platform to better serve customers, anticipate their needs and solve problems, while reducing pressure on T-Mobile’s customer service. The company hopes the initiative will further reduce the attrition rate while also reducing costs.

T-Mobile estimates that these growth initiatives should lead to 5% service revenue growth, 7% EBITDA growth and 8% free cash flow growth between 2023 and 2027.

This would drive the telecom industry, supporting continued dividend growth even beyond recent growth.

Analysts are raising their sights

Following Analyst Day, analysts at Evercore raised their price target on T-Mobile to $220 from $210. Analysts called T-Mobile the most attractive story in the cable and telecom industries, raising the target based on a valuation based on 13.4 times 2027 free cash flow.

That’s a premium to the rest of the sector, but T-Mobile’s growth and the prospect of lower interest rates make its story that much more appealing. In addition, T-Mobile said it plans to return another $50 billion to shareholders between 2023 and 2027, even as it sets aside another $30 billion for acquisitions and other options. Even paying the recently increased dividend would only equate to about $4.1 billion a year in dividends. This therefore leaves ample room for share buybacks and dividend growth well into the future.