The Western Union Company (NYSE:WU) looks interesting and is about to pay a dividend

Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that The Western Union Company (NYSE:WU) is set to go ex-dividend in just 4 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 important because any trade in a share must have settled before the record date to be eligible for a dividend. In other words, investors can buy Western Union stock before December 16 to be eligible for the dividend, which will be paid on December 31.

The company’s next dividend is $0.23 per share, following the past 12 months, when the company distributed a total of $0.94 per share to shareholders. Based on the value of last year’s payments, Western Union stock has a yield of about 5.2% on the current stock price of $18.21. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! Therefore, readers should always check whether Western Union was able to increase its dividend or if the dividend could be reduced.

Dividends are usually paid out of company profits. If a company pays more in dividends than it earns in profits, then the dividend could be unsustainable. Fortunately, Western Union’s payout rate is modest, at just 47% of profits. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. Dividends consumed 51% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organizations.

It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE: Historic WU Dividend December 11, 2021

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. If earnings fall enough, the company could be forced to cut its dividend. That’s why it’s a relief to see Western Union’s earnings per share growing 4.4% a year 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.

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 13% per year on average. It’s encouraging to see the company increasing its dividends as earnings rise, suggesting at least some corporate interest in rewarding shareholders.

Last takeaway

Did Western Union get what it takes to maintain its dividend payments? Earnings per share growth was modest, and it’s interesting to note that Western Union pays less than half of its earnings and more than half of its cash flow to shareholders in the form of dividends. Overall, it’s hard to get excited about Western Union from a dividend perspective.

On that note, you’ll want to research the risks that Western Union faces. Every business has risks, and we’ve spotted 1 warning sign for Western Union you should know.

If you’re looking for dividend-paying stocks, we recommend checking out our list of the best dividend-paying stocks with a yield above 2% and an upcoming dividend.

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