3 Reasons to Buy Sirius XM Stock Like There's No Tomorrow

Key Points

• After three years of sliding revenue, the road ahead looks promising for Sirius XM's business.

• Berkshire Hathaway now owns 37.1% of the company, having added to its stake last month after an earnings-related selloff.

• The 4.7% dividend is more than sustainable at a time when fixed income options are likely moving lower.

• 10 stocks we like better than Sirius XM ›

On the surface, there may not be a lot to like when it comes to Sirius XM Holdings (NASDAQ: SIRI). The satellite radio operator has been a monopoly since regulators cleared the combination of Sirius and XM 17 years ago, but that doesn't mean that the platform has the market cornered.

Connected cars, along with cheaper -- if not free -- streaming apps, make it easy for drivers to find more economical aural alternatives. Sirius XM has struggled in recent years. This will be the platform's third straight year of a slight decline in revenue and subscribers.

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The dreary backdrop may seem to make Sirius XM more a learning opportunity than a buying one, but don't touch that dial. There is a lot to like when it comes to Sirius XM in its current state of out-of-favor-ness. Turn up the volume, and the prospects get more bullish for the media stock. Here are some reasons to buy Sirius XM like there's no tomorrow.

Image source: Getty Images.

1. Bullish catalysts are everywhere

The gray clouds are thick right now. Sirius XM's latest quarter was poorly received. The platform's subscriber base is shrinking, but it's not because listeners are leaving at an accelerating pace. Churn is actually historically low right now. The rub for the satrad monopoly is that it's not getting enough people -- especially young drivers -- to sign up for the platform.

There are some reasons for optimism. Sirius XM has been signing deals with rising podcasters who are popular with young audiences. This week's easing of the federal funds rate -- and subsequent cuts -- should eventually make it easier for folks to finance new car purchases. Nothing jump-starts Sirius XM subscriptions like healthy automotive sales to load up the funnel of free trials.

Another thing that boosts the value proposition of a Sirius XM subscription is spending more time in the car. Everything is falling into place on that front. Gas prices are near a four-year low. Companies are asking employees back to in-office work. Road trips sound like a good idea at a time when the economy is iffy and international travel is challenging. An economic downturn -- as difficult as it may be for a model built around paid subscriptions and advertising -- may actually benefit Sirius XM as folks try to save money by physically going to the supermarket or store instead of relying on third-party delivery apps and ride-hailing services.

2. Warren Buffett is a believer

Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has emerged as Sirius XM's largest shareholder. Sirius XM has been in the portfolio of Warren Buffett's company for a couple of years, but unlike with most of the roughly three dozen stocks that Berkshire Hathaway owns, it's actually increasing its stake in the radio operator. It now owns more than 37% of the outstanding shares of Sirius XM.

Its latest purchase came early last month, in the days following the market's reaction to a difficult second quarter. This is important because it shows that Buffett's company sized up the sloppy financials, and the greatest investor of our time was fine with adding more at today's prices. Even if it's not Buffett himself calling all the shots right now, it's hard to argue with having Berkshire Hathaway as your largest stakeholder.

There's no reason to think that Berkshire Hathaway will eventually swallow Sirius XM whole at an acceptable premium. However, the holding company has to know how painful it would be to unload this gargantuan stake in the open market. It's not likely to be getting into something that it has plans to undo in the near future.

3. The dividend seems as safe as the valuation appears low

If there's a silver lining to the sliding share price -- at least for new investors -- it's that the yield is currently a beefy 4.7%. This is a payout that is going to become even more attractive if rates continue to inch lower. It's also surprisingly sustainable.

Sirius XM has boosted its quarterly dividend every year since initiating a distribution policy eight years ago. Its cash cow business can afford to keep the checks coming. The $1.08 a share that it's distributing to investors this year is a lot less than the $2.73 a share that analysts see Sirius XM earning this year. It's a low and manageable payout ratio below 40%, and Wall Street pros see earnings growth resuming next year.

This is not the only way that Sirius XM is using its 10-figure annual free cash flow. Sirius XM has reduced its share count by nearly half over the past dozen years through aggressive share buybacks. If Buffett and the company itself are buyers, do you really want to be a seller? Today seems like a good time to buy Sirius XM stock like there's no tomorrow.

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Rick Munarriz has positions in Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.