It looks like Sirius XM Holdings Inc. (NASDAQ:SIRI) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 6th of August will not receive this dividend, which will be paid on the 31st of August.
Sirius XM Holdings’s next dividend payment will be US$0.013 per share, and in the last 12 months, the company paid a total of US$0.053 per share. Based on the last year’s worth of payments, Sirius XM Holdings stock has a trailing yield of around 0.9% on the current share price of $5.88. If you buy this business for its dividend, you should have an idea of whether Sirius XM Holdings’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Sirius XM Holdings has a low and conservative payout ratio of just 22% of its income after tax. A useful secondary check can be to evaluate whether Sirius XM Holdings generated enough free cash flow to afford its dividend. It paid out 13% of its free cash flow as dividends last year, which is conservatively low.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That’s why it’s comforting to see Sirius XM Holdings’s earnings have been skyrocketing, up 22% per annum for the past five years. Sirius XM Holdings earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky “beep-beep”. We also like that it is reinvesting most of its profits in its business.’
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Sirius XM Holdings has delivered 7.4% dividend growth per year on average over the past four years. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Should investors buy Sirius XM Holdings for the upcoming dividend? Sirius XM Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It’s a promising combination that should mark this company worthy of closer attention.
So while Sirius XM Holdings looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. To help with this, we’ve discovered 1 warning sign for Sirius XM Holdings that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.