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The Globe and Mail

Sirius XM parent to pay first quarterly dividend

John Bitove, chairman of Canadian Satellite Radio Holdings Inc.

Deborah Baic/The Globe and Mail

A year after combining Canada's two money-losing satellite radio companies, Canadian Satellite Radio Holdings Inc. is dipping into its $50-million cash pile to pay investors the company's first dividend.

The company – which last year merged the Sirius and XM services in Canada to cut costs and help propel the company to an eventual profit – said it is generating enough cash to pay its investors an eight-cent quarterly dividend.

While neither company has turned a profit since satellite radio was introduced in Canada in 2005, the number of subscribers using the service has increased steadily and recently reached 2.2 million.

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The company has been generating enough free cash flow each quarter to raise questions about how it would be spent.

"We have a stable recurring revenue stream, and we have been able to realize cost synergies without sacrificing growth," chief executive officer Mark Redmond said Monday.

"We are confident in the company's ongoing financial strength, operational efficiency and ability to grow free cash flow."

Sirius XM Canada, the company's operating name, said revenue increased 13 per cent in its fourth quarter, to $68-million.

It posted a $4.1-million loss.

Last week, the federal broadcaster regulator renewed the company's broadcast licence for another six-year term that included slightly lower charges to develop Canadian talent.

When the company first received a licence in 2005, it was asked to pay out a percentage of its revenue to support Canadian talent that is higher than what is charged to traditional over-the-air broadcasters.

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While unprofitable, the company has paid $52-million to the Canadian Radio-television and Telecommunications Commission in the past seven years.

That is almost $20-million more than Canada's 400-plus commercial radio stations paid, in total, over the same period.

The fee was reduced to 4 per cent of annual revenue, from 5 per cent.

Royal Bank of Canada analysts increased their price target on the company's shares to $6.50 from $6 Monday, saying the company has made good on its promise to run a leaner operation following the merger.

"In our eyes, the combined company's solid first year demonstrates that the Sirius-XM merger has truly been game-changing," analysts Drew McReynolds and Haran Posner wrote in a note to clients.

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