Sirius XM Holdings (SIRI +0.00%) is putting a little more change in the pockets of its shareholders. The satellite radio provider is increasing its payout, boosting its quarterly dividend by 10% to $0.0121 a share.
It may not seem like much. We're splitting pennies, and Sirius XM isn't going to smoke out income investors with this move. Sirius XM's modest yield goes from 0.71% to just 0.78%. But it's still a big deal. The boost matters.
Image source: SiriusXM Radio.
Young aristocrat
Sirius XM turned heads when it initiated a dividend policy two years ago. It kicked in with a 10% increase last year, and it's following suit with the 10% boost it announced on Tuesday afternoon. A two-year streak of double-digit percentage payout hikes doesn't officially make Sirius XM a Dividend Aristocrat. Sirius XM needs 23 more years of increases to get there. But the media giant is still off to a great start.
The stock hasn't had a problem attracting growth investors in the past. Shares of Sirius XM have moved higher every single year since bottoming out in early 2009. It has been consistently profitable since 2010.
Growth is slowing as the market for satellite radio service matures. Pushing rate increases isn't as easy as it used to be now that most connected cars can stream free or nearly free smartphone app services. This should be the sixth consecutive year of decelerating top-line growth, and it will be the fourth straight year of single-digit revenue gains.
None of this is fatal: Sirius XM's scalable model is serving up 10-digit free cash flow, and as long as the subscription base inches higher, there should be an even heartier move on the bottom line. Sirius XM has dedicated most of its booty in the past to buying down its massive outstanding share count, but as Sirius XM's stock moves higher -- giving it less bang for its buyback buck -- it only makes sense to return more money to its shareholders directly through quarterly distributions.
A yield of less than 0.8% may not seem very exciting, but the back-to-back 10% hikes are statements. Sirius XM is committed to steady increases, and this stance should help provide a floor for the stock the next time it takes a hit as long as its fundamentals remain intact.
This week's hike is important. It means that last year's initial increase isn't a one-off event. As long as Sirius XM keeps building on the 33.5 million subscribers it had at the end of June and the $1.5 billion free cash flow that it's expected to generate this year, investors can count on what seems to be annual dividend boosts in the fall. It's smart money well spent for Sirius XM Radio.
