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Is It Smart To Buy Sirius XM Holdings Inc. (NASDAQ:SIRI) Before It Goes Ex-Dividend?

Sirius XM Holdings Inc. (NASDAQ:SIRI) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Sirius XM Holdings' shares before the 9th of November in order to receive the dividend, which the company will pay on the 30th of November.

The company's next dividend payment will be US$0.024 per share, and in the last 12 months, the company paid a total of US$0.097 per share. Based on the last year's worth of payments, Sirius XM Holdings stock has a trailing yield of around 1.6% on the current share price of $6.09. If you buy this business for its dividend, you should have an idea of whether Sirius XM Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Sirius XM Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Sirius XM Holdings paying out a modest 30% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 23% 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Sirius XM Holdings's earnings per share have risen 15% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, Sirius XM Holdings has increased its dividend at approximately 16% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Should investors buy Sirius XM Holdings for the upcoming dividend? Sirius XM Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.

So while Sirius XM Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Sirius XM Holdings has 4 warning signs (and 2 which are a bit concerning) we think you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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