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The board of The Western Union Company (NYSE:WU) has announced that it will pay a dividend of $0.235 per share on the 30th of June. This means the annual payment is 9.5% of the current stock price, which is above the average for the industry.
Western Union's Future Dividend Projections Appear Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. But before making this announcement, Western Union's earnings quite easily covered the dividend. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.
Looking forward, earnings per share is forecast to fall by 30.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 52%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Check out our latest analysis for Western Union
Western Union Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from $0.50 total annually to $0.94. This works out to be a compound annual growth rate (CAGR) of approximately 6.5% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Western Union May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. Although it's important to note that Western Union's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, Western Union could always pay out a higher proportion of earnings to increase shareholder returns.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Western Union is earning enough to cover the dividend, we are generally unimpressed with its future prospects. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Western Union has 4 warning signs (and 3 which are a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.