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The Western Union Company (NYSE:WU) has announced that it will pay a dividend of $0.235 per share on the 31st of March. The dividend yield will be 8.9% based on this payment which is still above the industry average.
See our latest analysis for Western Union
Western Union's Projected Earnings Seem Likely To Cover Future Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Western Union was paying only paying out a fraction of earnings, but the payment was a massive 115% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
EPS is set to fall by 28.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 50%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Western Union Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.50 in 2015, and the most recent fiscal year payment was $0.94. This works out to be a compound annual growth rate (CAGR) of approximately 6.5% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
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. Earnings per share has been crawling upwards at 2.2% per year. While EPS growth is quite low, Western Union has the option to increase the payout ratio to return more cash to shareholders.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Western Union has 4 warning signs (and 3 which make us uncomfortable) 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.