Is Sirius XM An Attractive Yield Play?

After the close on Tuesday, Sirius XM Holdings (SIRI) announced an eye catching stock buyback considering the $26 billion market cap for the stock. The question though is whether the company offers an appealing yield considering the balance sheet hit to make these capital returns work.
Adding Debt Sirius XM added $2 billion to a share buyback that now totals $12 billion in authorizations since early 2013. The amount is very sizable for what equates to a five year period so far.
The biggest hiccup with the plan is that the satellite music company only forecasts generating $1.5 billion in free cash flow in 2018. Naturally, one can quickly see that Sirius XM can only return that $1.5 billion to shareholders in 2018 without using excess cash or borrowing to repurchase more shares.
The problem with the company is that Sirius XM has borrowed excessively over the last few years to the tune of adding $5 billion to the net debt load. The total net debt is up to $6.6 billion at the end of September.
SIRI Net Total Long Term Debt (Quarterly) data by YCharts
In some cases, borrowing to buy a cheap stock with growth catalysts on the way can be a wise corporate utilization of cash. Sirius XM isn't likely in that position trading at about 17.4x free cash flow predictions for this year.
Maybe even the worst signal is that Sirius XM only has a net payout yield of 6% now. The combined dividend yield and net stock buyback yield doesn't rank in the top yielding... Read more

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