Looks like The Western Union Company (NYSE:WU) is set to go ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the latest date by which shareholders must be present on the books of the company to be eligible for payment of a dividend. The ex-dividend date is an important date to know because any purchase of shares made on or after this date may mean late settlement which does not appear on the record date. So you can buy Western Union stock before December 16 in order to receive the dividend, which the company will pay on December 31.
The company’s next dividend payment will be $0.23 per share. Last year, in total, the company distributed US$0.94 to shareholders. Based on last year’s payouts, Western Union has a 5.2% yield on the current stock price of $18.21. Dividends contribute greatly to investment returns for long-term holders, but only if the dividend continues to be paid. So we need to consider whether Western Union can afford its dividend and whether the dividend could increase.
See our latest analysis for Western Union
If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. Western Union paid out a comfortable 47% of its profits last year. A useful secondary check can be to assess whether Western Union has generated enough free cash flow to pay its dividend. Over the past year, it has paid out 51% of its free cash flow as dividends, within the usual range for most companies.
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?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. With that in mind, we are encouraged by Western Union’s steady growth, with earnings per share up 4.4% on average over the past five years. Earnings growth has been weak and the company is paying out more than half of its profits. Although it is possible to both increase the payout ratio and reinvest in the business, generally the higher the payout ratio, the lower the prospects for future growth of a business.
Many investors will gauge a company’s dividend yield by evaluating how much dividend payouts have changed over time. Western Union has recorded dividend growth of 13% per year on average over the past 10 years. We are pleased to see dividends increasing alongside earnings over several years, which may be a sign that the company intends to share the growth with shareholders.
Should investors buy Western Union for the next dividend? Earnings per share have grown at a steady pace and Western Union has paid out less than half of its earnings and more than half of its free cash flow in dividends over the past year. Overall, it’s hard to get excited about Western Union from a dividend perspective.
With that in mind, an essential part of thorough stock research is being aware of all the risks that stocks currently face. Example: we have identified 1 warning sign for Western Union you should be aware.
A common investment mistake is to buy the first good stock you see. Here you will find a list of promising dividend stocks with a yield above 2% and an upcoming dividend.
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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.