We recently published a list of 10 Best Dividend Stocks Under $5. In this article, we are going to take a look at where Sirius XM Holdings Inc. (NASDAQ:SIRI) stands against the other dividend stocks under $5.
Dividends have consistently been a strong source of returns over time. These stocks hold both theoretical and practical significance in assessing stock values. Although dividend stocks have underperformed the broader market in recent years, their long-term performance remains steady.
Since the beginning of 2024, the Dividend Aristocrats Index—which monitors companies that have consistently raised their dividends for at least 25 consecutive years—has yielded returns of over 8% for investors. However, this performance has fallen short compared to the broader market, which has surged by nearly 19% during the same period. Despite this shortfall, 2024 has been a favorable year for dividends overall. This improvement is largely attributable to several major technology firms, previously known for not paying dividends, announcing the start of their dividend programs. Moreover, these companies have collectively distributed billions in their inaugural dividend payments.
Also read: 12 Best Dividend Stocks For Steady Growth
The long-term performance of dividend stocks also takes into account periods of high interest rates, during which other asset classes typically experience declines. This doesn’t imply that dividend stocks only perform well during episodes of high interest rates. While there isn’t a clear connection between their performance and interest rates, historical data shows that they tend to remain relatively stable regardless of the rate environment. For instance, in certain periods of rising US interest rates, such as the mid-1970s, dividend-paying stocks outperformed the broader market. Conversely, as rates decreased from the mid-1980s to the mid-1990s, the performance of high-yield stocks relative to the market remained relatively stable. Even if we set aside historical data and concentrate on more recent performance, we find that elevated interest rates did not have any serious impact on the performance of dividend equities. For example, in 2022, when the Federal Reserve raised its federal funds rate seven times to tackle persistent inflation—four of which were consecutive hikes of 75 basis points—dividend stocks outperformed the broader market. This could be due to the fact that dividend-paying companies tend to be well-established and more stable, with enough confidence in their cash flows to commit to returning cash to shareholders. Moreover, committing to a dividend imposes financial discipline. Instead of using excess cash for acquisitions that may or may not create value, repurchasing shares at uncertain prices, or funding speculative growth initiatives, executives are compelled to manage payouts responsibly.
Given investors’ growing interest in dividend stocks, more companies are initiating and increasing their dividend payments. A key driver behind this trend is that many companies, particularly large tech firms, have substantial cash reserves and are rapidly boosting their free cash flows. This strong financial footing allows them to reward investors with higher dividends. According to the latest report from S&P Dow Jones Indices, companies in the index paid $153.4 billion in dividends during the second quarter of 2024, up from $151.6 billion in the previous quarter and $143.2 billion in the same period last year. The report also highlighted that there were 539 dividend increases reported, compared to 460 in the same period last year, marking a 17.2% year-over-year growth. The total amount of these increases reached $20.4 billion for the quarter, up significantly from $9.8 billion in Q2 2023. With that, we will take a look at some of the best dividend stocks under $5.
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A close-up of a hand, counting the money from the subscription fees of the Entertainment Communication Services company.
Sirius XM Holdings Inc. (NASDAQ:SIRI)
Number of Hedge Fund Holders: 33
Share Price as of the close of August 23: $3.2
After a rough start to 2024, Sirius XM Holdings Inc. (NASDAQ:SIRI) saw a boost in mid-August when Warren Buffett revealed that his company had more than tripled its stake in the broadcasting firm during the second quarter. As a result, the stock jumped nearly 4% between August 14 and August 15. Despite this recent uptick, it remains down over 43% for the year so far.
Sirius XM Holdings Inc. (NASDAQ:SIRI) is facing challenges due to increased competition. Spotify, a leading global player in digital music, recently reported an 18% rise in monthly active users in North America. Meanwhile, Sirius XM is struggling with its streaming service, Pandora, which it acquired over five years ago. Pandora has seen a drop in subscribers, losing 41,000 self-pay subscribers for Pandora Plus and Pandora Premium in the second quarter of 2024, bringing the total down to six million. Additionally, Sirius XM Holdings Inc. (NASDAQ:SIRI)’s Q2 revenue fell by 3% year-over-year to $3.18 billion. The company’s own subscriber base has also declined, dropping from 35 million in 2020 to 33 million in the most recent quarter.
That said, Sirius XM Holdings Inc. (NASDAQ:SIRI) is attractive for income investors because of its solid dividend history. The company has been growing its dividends for seven consecutive years, which makes it one of the best dividend stocks under $5. It currently offers a quarterly dividend of $0.0266 per share and has a dividend yield of 3.42%, as of August 23.
Sirius XM Holdings Inc. (NASDAQ:SIRI) remained popular among elite money managers during the second quarter of 2024, as hedge fund positions in the company grew to 33, from 17 in the previous quarter, according to Insider Monkey’s database. These stakes have a total worth of nearly $530 million.
Overall SIRI ranks 1st on our list of the best dividend stocks under $5. While we acknowledge the potential for SIRI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SIRI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.