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This Week in Sirius XM Radio

Rick Aristotle Munarriz
December 8, 2012

It was another eventful week for the only satellite-radio provider, even as shares of Sirius XM Radio (NASDAQ: SIRI) were essentially flat, going from $2.77 to $2.76. For comparison, the S&P 500 was also flat for the week, while the Dow 30 rose 1% and the tech-heavy Nasdaq fell 1%.

What happened on the Sirius XM front this past week? Well, the company initiated a revolving credit facility and followed it up a day later by announcing an aggressive share buyback and its first ever dividend. Pandora (NYSE: P) also saw its stock get slammed after posting disappointing guidance.

Let's take a closer look.

Let's give Sirius XM some credit
Making the most of cheap debt is something Sirius XM has done in the past, swapping out debt for bonds with lower interest rates and pushing out maturities.

And why not? Sirius XM's fundamentals have improved dramatically over the past three years. The company that was teetering on the brink of bankruptcy in early 2009 is now positioned to generate $700 million in free cash flow this year.

When Sirius XM announced that it had taken out a $1.25 billion revolving credit facility, it wasn't hard guess why the satellite-radio provider was willing to take on a more leveraged stance.

"The company will use borrowings under its facility for working capital and other general corporate purposes, including, without limitation, share repurchases, dividends, and the financing of acquisitions," read the press release.

CEO Mel Karmazin seems to make it a quarterly point that there isn't a company that Sirius XM is interested in buying. Dividends and share repurchases would make far more sense -- and that's just what investors got a day later.

Returning money to shareholders
It's clear that Sirius XM prefers buybacks over dividend checks as a way to put its free cash flow and newfound borrowing ability to work. On Thursday, Sirius XM's board approved a $325 million dividend but a much larger $2 billion earmarked for share buybacks.

The payout won't amount to much -- just $0.05 a share that will go out to the company's shareholders later this month. If Sirius XM isn't feeling more generous than that now, when qualified dividend taxes max out at 15%, it's not going to feel the need to part with more than amount that next year and beyon