Shareholders of Sirius XM Radio (SIRI 4.43%) will have more than the potential of capital gains to reward them for their patience. The satellite radio provider initiated a payout policy on Thursday. Investors will be receiving $0.01 a share every three months. That may not seem like much, but the quarterly distributions add up when your stock price is cheaper than a burger chain's value meal. Sirius XM's yield works out to be 0.96% based on last week's close at $4.11.
This isn't the kind of payout that will send income investors flocking to Sirius XM, but it can't hurt. Sirius XM is generating a ton of dough. It expects to approach $1.5 billion in free cash flow this year, and while tackling its debt load and buying back stock is admirable, having an actual quarterly dividend will turn heads in certain circles.
The dividend may find the stock on the investing radar of more conservative investors than those that have typically owned the media provider before, but this isn't a new development. Let's look at some of the reasons why Sirius XM has been a worthy consideration for more than just traditional growth stock investors.
1. Sirius XM is consistently profitable
There was a time when Sirius XM wasn't in the black. The merger of Sirius and XM in 2008 didn't pay off right away, and by early 2009 the stock traded as low as $0.05 with rumblings of the combined company filing for bankruptcy protection. It didn't happen, of course. Sirius XM got the bailout it needed, and it turned things around fairly quickly. It turned a profit by the holiday quarter that year, and it hasn't looked back since.
Sirius XM has now posted 28 consecutive quarters of adjusted earnings. It's a meaty streak, and probably not what you expected out of one of the most shorted stocks on the market.
2. The stock's beta is lower than you probably think
Beta isn't a perfect gauge, but growth stock investors typically have to settle for stocks with a beta north of 1.00. The higher the number, the greater its volatility is relative to the S&P 500. Sirius XM used to have a sky-high beta, but the stock has settled now that growth has slowed and speculators have moved on from trading in and out of the stock.
Sirius XM's one-year beta now stands at 1.02, roughly in line with the S&P 500's swings. Sirius XM isn't boring. That will never be the case. However, it's not a bucking bronco anymore.
3. Buybacks help the bottom line
The biggest reason why Sirius XM's stock has been stuck in the single digits for more than 14 years is that there are a lot of shares outstanding. A recapitalization followed by the merger and then the 40% preferred share stake issued in exchange for a 2009 lifeline have bloated the share count.
Sirius XM has been aggressive in repurchasing its shares, and over the past year alone we've seen the average outstanding share count decline by 8%. Sirius XM committed another $2 billion to its buyback efforts on Thursday, so it will continue to improve its bottom line by lowering the outstanding shares that its consistent earnings get divided into in arriving at its per-share profitability.
We can also point to its slowing yet steady growth (revenue has grown between 9% and 13% in each of the past four years) and its impressive reach (we're now up to nearly 31 million subscribers), but in the end the quarterly dividend check is just Sirius XM playing the part of the reliable investment that it has been for years.