Warren Buffett's Berkshire Hathaway Loads Up On Sirius XM Amid Price Target Cuts: Company Pays Dividend 'But Better Off In T-Bills,' Says Expert

Warren Buffett, the legendary investor and chairman of Berkshire Hathaway, has been making waves in the investment world once again. This time, he's loading up on shares of Sirius XM Holdings (SIRI), the satellite radio giant, despite the company's underperformance in 2024 and analyst price cuts. But is this a wise move, or is Buffett better off investing in Treasury bills, as one expert suggests?

Berkshire Hathaway revealed in an SEC filing that it owned 132.9 million shares of Sirius XM by the end of June, up from the 36.7 million it held just three months earlier. This represents a nearly $400 million position in the media giant. However, Buffett's rationale for ramping up his stake in one of this year's more disappointing performers in Berkshire Hathaway's stock portfolio remains unclear. This is an icy cold regulatory filing, and not a warm Buffett note to shareholders or a chat with investors at the company's iconic annual shareholder meeting.

Shares of Sirius XM opened 8% higher on Thursday following the surprisingly robust Buffett move. Even after the pop, the satellite radio monopoly is still trading more than 40% lower in 2024. Sirius XM did post a larger-than-expected 3% decline in revenue in the second quarter, its second-worst decline in its 30 years of public trading. Only the 5% year-over-year decline during the pandemic-slammed second quarter of 2020 was worse. However, it wasn't the miss that turned the market's warning bell into a dinner bell for Buffett. He was accumulating the shares during the second quarter itself.

The move is also surprising given what another notable billionaire is doing. Media mogul John Malone is the largest shareholder of Sirius XM, and folks can grab a piece of his controlling position through ownership of Liberty Sirius XM Group (LSXMA) tracking shares. Tracking shares can be confusing and they aren't very popular with investors, but that's likely about to change. Liberty Sirius XM Group investors will vote at the end of next week to see if they want to combine their shares with the more widely owned Sirius XM common stock. If the vote is successful -- and it likely will be given Malone's backing and the fact that the shares trade at a discount to Sirius XM -- the transaction would be finalized on Sept. 9.

Buffett is always looking for a way to get more bang for his buck. He already owns a large position in Liberty Sirius XM Group. Why did he buy more Sirius XM when he could've just picked up more of the tracking shares instead to get in cheaper ahead of next month's combination? I don't have an answer to that, but I have a theory as to why Sirius XM was one of his few additions this past quarter.

Sirius XM is cheap right now, and not just because the stock chart tells us that the shares are low. Despite the media stock's disappointing financials lately, this isn't breaking news. Sirius XM hasn't posted organic double-digit revenue growth since 2014. Satellite radio has been a hard sell for drivers in this era of connected cars where a growing number of cars on the road have easy access to streaming apps. However, Sirius XM remains popular. There are roughly 33 million subscribers to the platform. A recent dip in subscribers is problematic, but churn is near historic lows. Sirius XM has turned to the scalability of its business model to acquire proprietary content that's keeping users around. The challenge these days is widening the funnel of new trial users.

In the meantime, Sirius XM is consistently profitable. It's also been aggressively buying back shares with its 10-figure free cash flow, something that is making per-share profitability more attractive than the actual increase in net income. The stock is trading for less than 10 times trailing earnings. It's also using its money-making prowess to pay a dividend that has grown every year since it initiated a payout policy in 2016. The company has a dividend yield of 3.7% for its patient investors.



The meandering top-line growth, leveraged balance sheet, and potential slow fade out of the satellite radio model can't be ignored. However, the market seems to have more than discounted Sirius XM itself. With so many other traits that are in Buffett's wheelhouse, it's not a surprise to see him buying as the market was selling.

Warren Buffett sitting on a huge paper loss. No idea why he bought this stock. Yeah pays a dividend but better off in T-bills. $SIRI pic.twitter.com/pP9Ri56Ad0— Dave Gretta | author of 2 stock investing books (@DGretta_Author) January 25, 2025

Dave Gretta, a business system analyst at the Hut Group and the author of 'Across The Street From Wall Street' in an X post, had a different take on Buffett's move. He suggested that investors might be better off investing in Treasury bills with higher returns. However, Buffett's long-term investment strategy and his willingness to invest in undervalued companies may lead him to see opportunities where others do not.

In conclusion, Warren Buffett's decision to increase his stake in Sirius XM Holdings (SIRI) despite its underperformance in 2024 and analyst price cuts can be attributed to several specific factors in the company's financials and business model. These factors include consistent profitability, cash flow and returns to shareholders, bargain valuation, stability in revenue and subscribers, content and scalability, and the company's dividend yield and payout history. While there are risks associated with the satellite radio sector, such as slowing subscriber growth, debt levels, and competition from streaming services, Buffett may be betting that these risks are temporary or manageable in the long run. As always, investors should do their own research and consider their own risk tolerance before making any investment decisions.