It will be another two decades before Sirius XM Holdings (NASDAQ:SIRI) can be crowned as a Dividend Aristocrat -- and a lot can happen between now and then -- but the satellite radio giant came through with another payout hike this week. Sirius XM is boosting its quarterly dividend by 10% to $0.01331 a share.
This is the third time in as many years that Sirius XM increased its distribution, and even if it seems as if the media giant is merely splitting fractional pennies here, it all adds up, given Sirius XM's single-digit stock price. The company's board moving to return more money to its shareholders on Wednesday lifts the stock's yield to 0.85%. A dividend below 1% may not seem like much, but with Sirius XM seemingly smitten by raising its disbursements by exactly 10% in each of the past three years since initiating a dividend policy in late 2016, investors could see this as a win-win approach. If the stock's yield doesn't move higher over time, it means that the shares are posting annual gains of 10% or better.
Sirius XM will never be one of the first names that investors think of when it comes to dividend stocks, but there's a lot of surprising stability at the satellite radio monopoly. It's been consistently profitable, working on its 10th consecutive year with its income statement in the black. Sirius XM generates a ton of dough, and is on pace to generate roughly $1.6 billion in free cash flow this year.
High-income chasers will understandably look elsewhere. Sirius XM's yield can be easily outmatched with a lot less risk by buying into a top money market fund. However, the thing here is that Sirius XM the stock has also been pretty resilient. It's working on 11 straight years of positive returns. There are no guarantees that the winning streak will continue, but after completing its acquisition of Pandora earlier this year, Sirius XM did become a more diversified audio entertainment company.
Sirius XM has been aggressively returning money to its stakeholders. Several years ago the emphasis was on share buybacks given its bloated share count, but after years of shelling out dividends -- and boosting those payouts by more than 33% along the way -- the stock has earned its right to be considered a high-quality investment for income investors.
The stock isn't cheap. It trades at 24 times next year's earnings, a multiple that far exceeds its organic growth rate. However, for income investors chasing chunky yields to the point where those distributions aren't sustainable, Sirius XM is looking sharp with a payout ratio of roughly 25%. Whether you view Sirius XM as a growth stock that pays a dividend or an income stock with a growth bent, it could be the best of both worlds for investors.