Editor’s Note: In case you missed it, last week’s edition of Safety Net gave us a detailed look at how the Safety Net system fared throughout 2024.
The results are pretty impressive on their own… see for yourself by clicking here.
– James Ogletree, Managing Editor
In the past, I absolutely adored radio. There was a time I was even a voice on the airwaves—first as a sportscaster during college, and later hosting the Oxford Club radio show in South Florida. Our broadcast reached out to Oxford Club subscribers as well.
However, over the years, I’ve noticed that music stations have shifted to automated programming, leaving behind the quirky local DJs that added personality. Meanwhile, talk radio has become increasingly polarized, with commentators echoing similar views on endless loop.
That’s when I discovered SiriusXM.
If SiriusXM is new to you, think of it as cable TV for your radio. There’s an abundance of options beyond traditional AM and FM stations, allowing you to build a personalized library of channels just for you.
What’s even better is that their music stations don’t just play the top chart hits, and you can tune into a wide spectrum of opinions on the talk channels. Plus, there’s comedy, live sports broadcasts, and a lot more.
I’m definitely a fan… and I’m far from alone, as Sirius boasts an impressive 33 million subscribers.
Turning to the financials, Sirius XM Holdings (Nasdaq: SIRI) offers investors a 5.2% yield, which could delight income seekers more than Howard Stern securing an interview with P. Diddy.
But the critical question is: Can investors rely on that dividend?
Despite my loyalty as a customer over the years, it’s worth noting that Sirius operates in a high-churn business environment. Consequently, revenue has been on a decline since 2022, with free cash flow taking hits since 2021.
In a scenario reminiscent of Rachel Maddow’s dipping ratings, free cash flow has indeed dropped. Nonetheless, the company still manages to pull in sufficient cash to meet its dividend obligations.
In 2023, SiriusXM generated a robust $1.2 billion in free cash flow, while distributing $383 million to shareholders. This results in a conservative payout ratio of just 32%. Even with expected declines in cash flow and rising dividends in 2024, the payout ratio is projected to remain a comfortable 41%.
The company has been raising its dividend each year since starting in 2016. The most recent increase took it to $0.27 per share this past November, equating to a 5.2% yield at the current stock price.
So, here we have a company capable of sustaining its current dividend with a commendable, albeit brief, history of raising it. However, declining free cash flow throws up a red flag in the Safety Net model.
With free cash flow dropping over the last year and in preceding years—and a further decline anticipated based on 2024 figures—the dividend’s safety is in question, particularly with the company carrying $10 billion in debt.
If SiriusXM cannot reverse its downward cash flow trend, the dividend could eventually be at risk.
Dividend Safety Rating: D
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Remember, Safety Net focuses exclusively on individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.
