The board of Sirius XM Holdings Inc. (NASDAQ:SIRI) has announced that it will be paying its dividend of $0.27 on the 21st of November, an increased payment from last year's comparable dividend. This will take the annual payment to 4.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Sirius XM Holdings

Sirius XM Holdings' Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Sirius XM Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 9.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 9.1% by next year, which is in a pretty sustainable range.

Sirius XM Holdings Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of $0.40 in 2016 to the most recent total annual payment of $1.06. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Sirius XM Holdings has impressed us by growing EPS at 11% per year over the past five years. Sirius XM Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Sirius XM Holdings Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Sirius XM Holdings you should be aware of, and 2 of them can't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.