Wednesday, May 28, 2014

Special Dividend from Sirius XM Canada Holdings (TSE: XSR)

When I first started reading about dividend growth investing, authors would give examples of companies who paid special dividends. I found the examples intriguing, but thought trying to pick a company that would pay a special dividend would be much like trying to pick a potential take-over target...too hard for this simple country hick. While initiating a position in Sirius XM Canada Holdings ("Sirius") a few months ago, the thought of a special dividend was not a consideration.

What interested me in Sirius was their steady sales growth (11% in FY13), strong free cash flow generation, and tempting 5% dividend yield. The fact that they are a market leader in their domain in Canada (with their competition coming from conventional, free radio programming), with quality programming, and have been successful in negotiating with automotive OEMs lead me to believe they had established a sustainable competitive advantage.

Fast forward to today when after refinancing a debt obligation (at a much lower rate) and signing a new revolving credit facility, Sirius declares a special dividend. The market initially reacted with a 4% bump in share price, before a rather strange small decrease (0.5%) over yesterday's closing share price. Being invested for the long-haul, I'm 100% fine with sitting on my position and collecting my first ever special dividend next month. That said, if Mr Market continues to react irrationally by making Sirius even cheaper for me to buy, I'm tempted to add to my current position, as I have a great deal of faith in Sirius's Canadian business.

(Full Disclosure: Long XSR)

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