Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Sirius XM Holdings Inc. (NASDAQ:SIRI) is about to go ex-dividend in just 2 days. This means that investors who purchase shares on or after the 5th of November will not receive the dividend, which will be paid on the 30th of November.
Sirius XM Holdings’s next dividend payment will be US$0.015 per share, on the back of last year when the company paid a total of US$0.059 to shareholders. Last year’s total dividend payments show that Sirius XM Holdings has a trailing yield of 1.0% on the current share price of $5.73. If you buy this business for its dividend, you should have an idea of whether Sirius XM Holdings’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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 paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Sirius XM Holdings generated enough free cash flow to afford its dividend. The good news is it paid out just 14% of its free cash flow in the last year.
It’s positive to see that Sirius XM Holdings’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Sirius XM Holdings has grown its earnings rapidly, up 23% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Sirius XM Holdings looks like a promising growth company.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last four years, Sirius XM Holdings has lifted its dividend by approximately 10.0% a year on average. 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.
To Sum It Up
Is Sirius XM Holdings worth buying for its dividend? We love that Sirius XM Holdings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There’s a lot to like about Sirius XM Holdings, and we would prioritise taking a closer look at it.
In light of that, while Sirius XM Holdings has an appealing dividend, it’s worth knowing the risks involved with this stock. For example, we’ve found 1 warning sign for Sirius XM Holdings that we recommend you consider before investing in the business.
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.