Is This Out-of-Favor Stock Yielding 4.8% Starting to Turn the Corner?

There are several comedy channels available on Sirius XM Holdings' (NASDAQ: SIRI) satellite radio platform. Over the past few years, it seems as if Sirius itself has become the joke. The stock has declined for five consecutive years, and -- until Thursday -- it was on its way to stretching that streak to six. Sirius XM could finally be ready to get the last laugh.

Sirius XM shares soared 9% after posting encouraging financial results on Thursday morning. It was enough to get the media stock back into positive year-to-date territory. If it finally stabilizes after three years of declining revenue, Sirius XM stock's low valuation and high yield could make it one of the safer and easier ways to beat the market in 2026.

Sirius XM is ready to go from a punchline to a punch. Investors who have seen the stock only go down might soon find out that the volume knob goes both ways.

Image source: Getty Images.

Life is a highway

It took a few painful years to get here, but Sirius XM is in the right place at the right time. It came through with a blowout quarter, just as the market is rotating out of richly priced software and tech stocks. If there was ever a time for a cheap stock with a penchant for buybacks and payouts to turn heads, this was it.

There is a lot to like about Sirius XM's performance this week. Let's start at the top line. Revenue rose a mere 0.2% to $2.19 billion. It's not much of an increase, but zoom out a bit. This report follows year-over-year declines in each of the previous six quarters. Its flagship subscription revenue was marginally negative. Increases in advertising and equipment revenue -- two segments that had been negative over the first nine months of the year -- helped push the overall business in the right direction.

It's not the only metric worth highlighting. Sirius XM added 110,000 self-pay net subscribers during the final three months of last year. The platform saw its accounts peak at nearly 35 million in late 2019. It's been a gradual fade out to roughly 33 million subscribers today. Any uptick is worth noting for a business that's been in decline in recent years. This is an uptick. Yes, Sirius XM gained 80,000 of those with a new offering for its higher-priced plans, which give a companion an app-based subscription at no additional cost. Even if you back those out, it's still an increase.

Another encouraging measuring stick is its retention. Sirius XM's monthly churn rate for the fourth quarter clocked in at a historic low of 1.4%. Customers are coming. Existing subscribers are sticking around. Ad revenue is rising as Sirius XM is getting better at monetizing its podcast and celebrity content through ad-supported video and social platforms.

Slow ride, take it easy

It's easy to see how it's all coming together in a flight to safety for investors. Sirius XM is cheap. Even after Thursday's pop, the shares are trading for a little more than 7 times forward earnings. There's also a 4.8% dividend yield that more than quadruples the S&P 500's payout.

Sirius XM has increased its quarterly distributions eight times in the last nine years. It held pat last year, but the quarterly rate is secure, with Sirius XM earning almost three times its dividend. The low payout ratio allows Sirius XM to also aggressively pay down its debt and repurchase its stock. It has cut its outstanding share count almost in half over the past 13 years.

Guidance it initiated on Thursday for the year ahead is flattish, but that's an improvement after three years of modest backpedaling. You would have to round down from last year's performance to hit the $8.5 billion in revenue and $2.6 billion in adjusted EBITDA that Sirius XM is targeting for 2026. It does see free cash flow rising from $1.26 billion to $1.35 billion this year.

There's one last cherry on top of this sector rotational sundae. Sirius XM's largest shareholder is Berkshire Hathaway. Over the last couple of years, it's been increasing its stake as the shares have fallen. It now owns more than 37% of Sirius XM. You're in good company with this company.

Let's close on a joke, now that I have hopefully convinced you that Sirius XM is no longer a laughingstock. A gold bar, Sirius XM, and a store specializing in lockboxes walk into a bar. The bartender says, "Well, it's about time the safe havens got here."

Rick Munarriz has positions in Sirius XM. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.