Throughout Warren Buffett's investment history, Berkshire Hathaway's investment portfolio has included all three major U.S. telecom companies. Dividend payments, a steady stream of revenue, and a reasonable valuation could have been reasons that Buffett's took an interest in these stocks.
Today, Berkshire only holds one telecom stock in its portfolio. Fortunately, it was the one offering the highest returns. Moreover, this stock should continue surging higher as customer count and service offerings increase.
Buffett's telecom stock
Today, T-Mobile (NASDAQ: TMUS) is the only telco in Berkshire's portfolio.
Admittedly, its two main competitors, AT&T and Verizon, look more like Buffett stocks on the surface. Both have a steady revenue stream, low price-to-earnings (P/E) ratios, and generous dividend payouts.
However, T-Mobile was the only stock that earned market-beating gains over the last five years. This applies even when including the high dividend payouts of its peers.
For most of that time, T-Mobile stood out by not offering a dividend. Nonetheless, in late 2023, it made its first payout to shareholders. Today, its $3.52 per share annual payout offers shareholders a dividend yield of around 1.3%.
That is far below the higher-yielding payouts of its peers. Nonetheless, with the S&P 500's dividend returns now at about 1.35%, it closely approximates market averages.
T-Mobile's competitive advantage
Additionally, T-Mobile has some distinct competitive advantages over its peers. Since it came into existence in 1994, it has only been a wireless carrier. This means it does not have legacy costs from past landline businesses, like Verizon and AT&T.
Initially, the company competed on price, steadily winning market share from legacy carriers. It also grew through acquisitions, buying out companies such as Sprint and UScellular.
The Sprint purchase is particularly notable since it gave T-Mobile control over critical wireless spectra, giving it access to frequencies that serve as a foundation for its wireless services. Previously, its peers had an edge on quality. Now, for three consecutive years, T-Mobile has ranked first for overall network experience in Opensignal's Mobile Network Experience report.
T-Mobile by the numbers
Buffett's team has probably also been drawn to T-Mobile's performance. In 2024, postpaid net customer additions were 6.1 million. That led to $81 billion in revenue for 2024, a 4% increase from year-ago levels. While that is arguably not high enough to make it a growth stock, it continues to outperform its main competitors.
The company also managed to reduce operating expenses by more than 1%, dramatically boosting net income. Consequently, its adjusted free cash flow was $17 billion, growing 25% year over year. It reported $22 billion in net cash provided by operating activities, rising 20% from year-ago levels.
T-Mobile expects nearly as much growth in 2025. It forecasts between 5.5 million and 6 million in postpaid net customer additions for the year. The company also calls for net cash from operating activities of between $26.8 billion and $27.5 billion, which would mean a 24% increase at the midpoint.
Its P/E ratio is 27. While that is higher than its peers', it has dropped from past levels. Given how quickly the company has grown its free cash flow, it is a level that can arguably appear attractive to new investors.
Buffett and T-Mobile
Considering its business and financials, Buffett and his team made a wise decision by investing in T-Mobile.
Of the three telecom stocks, T-Mobile may appear least suited to Buffett's perceived investment style. Still, he stayed consistent with his history of successful stock picking by choosing the best performer of the three.
Indeed, the company has built a competitive advantage on value, and its service quality has improved in recent years. Financially speaking, its free cash flow has improved dramatically, and it's a stock investors can buy at a relatively reasonable valuation, considering its successes.
As T-Mobile continues to draw more customers to its network, it will likely translate into further gains for Buffett's team and anyone following in Berkshire's footsteps.
Should you invest $1,000 in T-Mobile US right now?
Before you buy stock in T-Mobile US, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and T-Mobile US wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $745,726!*
Now, it’s worth notingStock Advisor’s total average return is830% — a market-crushing outperformance compared to164%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
