Those looking to become successful investors could do worse than following in the footsteps of legendary Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) CEO Warren Buffett, arguably one of the greatest investors of all time. Since taking the helm of the company in 1965, Buffett has an unparalleled track record, as his stock picks have generated compounded annual gains of roughly 20% and collectively soared 4,384,748%.
Stock splits have enjoyed a resurgence in recent years, and it's easy to see why. The practice is generally reserved for companies with consistently strong sales and profit growth, which fuels a surging stock price. In other cases, they can be used to further a corporate action.
Investors might be surprised to learn that despite selling large swaths of Berkshire's equity portfolio in recent quarters, the so-called "Oracle of Omaha" has been buying up shares of one stock-split stock that he seemingly can't get enough of -- Sirius XM Holdings (NASDAQ: SIRI).
In a regulatory filing that dropped earlier this month, it came to light that Berkshire Hathaway increased its holdings in the satellite radio operator by more than 3.5 million shares, spending more than $86.7 million in the process. That brings Buffett's total stake to 108.7 million shares, currently worth more than $2.9 billion (as of this writing). With about 339 million shares outstanding, that amounts to about 32% of the company's outstanding shares.
Sirius XM has struggled in recent years, so why is Buffett buying the stock like it's going out of style?
First, there's the company's industry dominance. When it comes to satellite radio, Sirius is without equal. It has 33 million paying subscribers on its rolls, but its audience climbs to 150 million listeners when you include Pandora, the company's ad-supported streaming music service.
In the second quarter, revenue declined 3% year over year to $2.18 billion, while earnings per share (EPS) of $0.08 was flat. While that might not seem like much to write home about, a look at several other metrics provides insight into why Buffett finds this business so appealing.
During the quarter, Sirius XM generated free cash flow of $343 million. The company's roughly 33 million subscribers generate a healthy amount of recurring revenue, as does the advertising on Pandora. The subsidiary reported 2.6 billion listener hours, which helps guarantee robust advertising rates. Buffett is a big fan of recurring cash flow, and Sirius has that in spades.