Last update on 2024-06-27

Western Union (WU) - Dividend Analysis (Final Score: 7/8)

Discover Western Union's (WU) impressive dividend performance with an in-depth analysis of its 7 out of 8 criteria score. Ideal for income-focused investors.

Short Analysis - Dividend Score: 7

We're running Western Union (WU) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis of Western Union's (WU) dividend policy reveals that it has a commendable dividend yield which significantly surpasses the industry average, showcasing its generous return to shareholders. However, it also points out some inconsistencies and fluctuations in the annual dividend growth rate and payout ratios. While the company has managed to maintain dividend payments covered by earnings for the most part, occasional drops in coverage and fluctuating free cash flows highlight concerns regarding long-term sustainability. Additionally, Western Union has been reliable with stock repurchases, thereby showcasing a commitment to returning value to shareholders. Yet, its dividends, while high and attractive, call for a cautious approach due to the financial volatility noted in certain years.

Insights for Value Investors Seeking Stable Income

Given Western Union’s high dividend yield and its long history of paying dividends, it can be an attractive option for income-seeking investors. Nonetheless, potential investors should remain cautious and keep an eye on the company's financial health and ability to sustain its dividend payments in the long run. If you are interested in stable and predictable dividends, it might be wise to diversify and not rely solely on Western Union's stock.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Explain the criterion for Western Union (WU) and why it is important to consider the Dividend Yield compared to the Industry Average.

The current dividend yield of 7.8859% for Western Union (WU) is significantly higher than the industry average of 2.43%. Over the last 20 years, Western Union's dividend yield has shown a notable upward trend, starting from a mere 0% in the early 2000s to present levels. This substantial trend indicates that Western Union has been increasingly generous in returning value to its shareholders. Comparatively, the industry average has fluctuated but remained relatively stable around the 1-3% mark. Such a higher-than-average dividend yield can be attractive to income-focused investors, but it is crucial to assess the sustainability of these payouts. Western Union's high current yield juxtaposed with its fluctuating stock price (from $22.42 in 2006 to $11.92 in 2023) may signal underlying business challenges or a strategic focus on rewarding shareholders. The steadiness in the dividend per share, climbing from $0.01 in 2006 to $0.94 by 2023, underpins a consistent payout policy. Overall, Western Union's dividend yield being more than three times that of the industry average is a double-edged sword: It offers attractive income potential but warrants a careful examination of the company's long-term dividend sustainability and financial health.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate indicates how much the dividend payout has increased over a specific period. A growth rate higher than 5% is considered healthy and shows a commitment to return capital to shareholders.

To interpret if Western Union (WU) meets the criterion of having a Dividend Growth Rate higher than 5% in the last 20 years, we analyze the provided Dividend Ratio data. The dividend growth shows inconsistency, with some years having a Dividend Per Share (DPS) ratio as high as 316.6667% (2010) and some years with 0%. The average Dividend Ratio over the period is approximately 38.70%. However, large fluctuations suggest that the growth was not steady. The significant drops to 0% in several years further underline the volatility in dividend payouts. Over a 20-year period, we see more variability than sustained growth. Therefore, while the average is above 5%, the inconsistencies suggest that the trend is not a sign of stable and reliable growth. This trend can be viewed negatively because investors typically favor companies that provide consistent and predictable dividends.

Average annual Payout Ratio lower than 65% in the last 20 years?

Explain the criterion for Western Union (WU) and why it is important to consider

The Average Payout Ratio lower than 65% as a criterion evaluates the sustainability of the company's divid

Dividends Well Covered by Earnings?

This criterion assesses whether a company's earnings sufficiently cover its dividend payments.

Evaluating Western Union (WU)'s earnings per share (EPS) in relation to its dividends per share (DPS) from 2003 to 2023, we see that until 2007, the company didn't pay significant dividends, indicating initial reinvestment phases or a lack of dividend policy. Starting from 2007, the dividend coverage ratio—which is calculated by dividing EPS by DPS—shows a generally positive trend, despite some volatility. Most years have a ratio above 1, indicating that earnings sufficiently cover dividends. Notably, in 2017 and 2018, the ratios experienced significant drops due to temporary EPS declines, recovering strongly thereafter. Yet, the relatively lower ratios in recent years suggest heightened caution. Nevertheless, Western Union appears to be cautiously managing its dividends, likely to ensure long-term sustainability. Overall, the trend is moderately good but advises a watchful eye on ongoing EPS stability.

Dividends Well Covered by Cash Flow?

Dividends well-covered by cash flow mean that the company's free cash flow (FCF) sufficiently exceeds its dividend payments. This makes the dividends sustainable and indicates good financial health.

Analyzing Western Union’s free cash flow (FCF) and its dividend payout amount reveals some interesting trends. Over the given period, WU's dividend cover ratio shows sizeable fluctuations. For instance, in 2005, the FCF to dividend payout ratio is approximately 0.44, illustrating that the FCF was only enough to cover 44% of the dividends, which is concerning. However, in 2006, this ratio spikes drastically to more than 3 times the dividend payout, highlighting an abnormal year with extraordinary cash flow relative to dividends. The years following display a consistent struggle, with ratios well below 1. A general preferable trend would be ratios consistently above 1, indicating that FCF is ample to cover dividend payments. Notably, recent years show an uptick with ratios closer to 0.97 and 0.55 in 2022 and 2023 respectively, indicating improvements but still signifying financial stress in achieving fully covered dividends. WU's management needs to address the volatility to assure investors of steady dividend sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Western Union (WU) and why it is important to consider

Stable dividend payments for Western Union over the past two decades is crucial for income-seeking investors. The consistent ability to maintain or gradually increase dividend payments instills confidence in the company's fiscal health and management, reducing the risk for investors who rely on this income. A 20% decrease or more would indicate instability which may be detrimental for those seeking consistent dividends.

Dividends Paid for Over 25 Years?

Explain the criterion for Western Union (WU) and why it is important to consider

Dividends paid for over 25 years refers to a company consistently paying dividends to its shareholders for a continuous period of at least 25 years. This criterion is crucial as it indicates the company's long-term financial health, profitability, and its commitment to returning value to shareholders. Companies that meet this criterion are often seen as reliable and stable investments.

Reliable Stock Repurchases Over the Past 20 Years?

Evaluate the historical stock repurchasing pattern of Western Union (WU) over 20 years. This criterion is vital as consistent repurchasing usually reflects a company's financial health, shareholder value return commitment, and often leads to higher EPS due to decreased outstanding shares.

Over the past 20 years, Western Union (WU) has demonstrated a consistent trend in repurchasing its shares. The reported share counts have steadily decreased from 763.9 million in 2003 to 370.8 million in 2023, marking a clear decline in outstanding shares. The reliability in repurchasing can be seen in years except for 2003, 2004, 2005, 2007, which shows a strong pattern of share buybacks in the other 16 out of 20 years. The average rate of repurchase over this period stands at -3.5222, signifying an effective annual reduction rate in the number of shares. This trend is positive as it indicates Western Union's active management to enhance shareholder value, showcasing its robust financial strategy.