The Western Union Company (NYSE:WU) The stock is set to trade ex-dividend in 4 days. Generally, the ex-dividend date is one business day before the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. As a result, Western Union investors who buy the shares on or after September 15 will not receive the dividend, which will be paid on September 30.
The company’s next dividend payment will be $0.23 per share, and over the past 12 months the company has paid a total of $0.94 per share. Based on last year’s payouts, Western Union has a 6.3% yield on the current stock price of $14.91. If you’re buying this company for its dividend, you should have some idea of the reliability and sustainability of Western Union’s dividend. So we need to consider whether Western Union can afford its dividend and whether the dividend could increase.
Check out our latest analysis for Western Union
Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Fortunately, Western Union’s payout rate is modest, at just 42% of profits. Still, cash flow is usually more important than earnings in assessing the sustainability of dividends, so we always need to check whether the company has generated enough cash to pay its dividend. Fortunately, its dividend payouts only accounted for 44% of the free cash flow it generated, which is a comfortable payout ratio.
It is positive to see that Western Union’s dividend is covered by both earnings and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio generally suggests a higher margin security before the dividend is reduced.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Companies with consistently rising earnings per share tend to create the best dividend-paying stocks because they generally find it easier to increase dividends per share. Investors love dividends, so if earnings fall and the dividend is cut, expect a stock to sell heavily at the same time. It is encouraging to see that Western Union has grown its revenue rapidly, growing 35% per year over the past five years. Western Union pays out less than half of its earnings and cash flow, while simultaneously growing its earnings per share at a rapid pace. Companies with rising earnings and low payout rates are often the best long-term dividend-paying stocks because the company can both increase its earnings and increase the percentage of earnings it pays out, essentially multiplying the dividend.
Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Over the past 10 years, Western Union has increased its dividend by about 11% per year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing at the same time.
Should investors buy Western Union for the next dividend? We like that Western Union is increasing its earnings per share while simultaneously paying out a small percentage of its earnings and cash flow. These characteristics suggest that the company is reinvesting in the growth of its business, while the conservative payout ratio also implies a reduced risk of dividend reduction in the future. Western Union seems solid on this overall analysis, and we would definitely consider investigating it further.
On that note, you’ll want to research the risks that Western Union faces. We have identified 2 warning signs with Western Union (at least 1 that should not be ignored), and understanding them should be part of your investment process.
As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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