Ten years ago, T-Mobile US (TMUS -0.62%) has just completed its $1.5 billion all-cash acquisition of Metro PCS prepaid service provider. The first merger attempt with Sprint was on the horizon, and a series of game-changing “uncarrier” policies were in full swing.
Big Magenta has come a long way since that intersection. What if you saw long-term promise in this unconventional carrier back then, invested $1,000, and held on tight until February 2024?
Let's take a look.
Graph 10-year returns
A picture says a lot of words, so let's start there. Here's how his hypothetical $1,000 investment in T-Mobile has played out over the past 10 years, compared to similar bets. S&P500 Market index:
TMUS data by YCharts
Your $1,000 in T-Mobile stock would be worth about $5,400 today, compared to $2,820 if you simply tracked the broader market.
As it turns out, T-Mobile's bet exceeded its major competitors' investments by several miles. $1,000 investment verizon communications The 2014 stock price is worth just $883 today. AT&T For the same size stake, that would drop to $724.
Dividends — the great equalizer?
wait a minute. Marvell and Big Red always offer generous dividend yields. The same goes for exchange-traded funds (ETFs), which rival the S&P 500. Vanguard S&P 500 ETF. But T-Mobile only started sending out dividend checks two quarters ago, and its projected annual yield going forward is just 1.6%.
Have these strong dividends changed things for AT&T and Verizon investors? Let's take a look at what the four-way chart would look like if we enabled dividend reinvestment for everyone.
TMUS data by YCharts
Two major telecom companies have been able to reinvest dividends and grow their cash along the way, but the short answer is still a resounding “no.” Dividends still only increase annual returns by about 4% on average.
This time, the S&P 500 fund came close with a final total of $3,400, but T-Mobile's unchanged return remains the king of communications hill, at $5,400. This is an average annual growth rate of 18.4%.
Big Magenta is still my favorite communication idea today
Ten years ago, investing in T-Mobile was like picking the underdog in a telecom tug of war. Fast forward to today, and it's clear that Big He didn't just cut down Magenta's suitable trees, he was replanting the entire forest. What was once a telecom duopoly is now a fairly balanced competitive scene with strong pillars in red, blue and magenta.
While Verizon and AT&T were busy counting the pennies on their dividend checks, T-Mobile merged with Sprint in a $26 billion stock-swap deal to rebalance the wireless phone industry. We never stopped pushing the limits with innovative sales strategies and consumer-friendly prices. In some cases, boldness and innovation can be in your best interest.
In the long run, betting on companies that are disrupting an overly conservative industry could make banks laugh. For T-Mobile, it's money in your pocket. Although it may not be a game-changing success over the next decade, T-Mobile remains the only U.S. telecom stock I recommend today.
Anders Byland has positions in T-Mobile US and Vanguard S&P 500 ETF. The Motley Fool owns a position in and recommends the Vanguard S&P 500 ETF. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
