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 Western Union company (NYSE: WU) is set to be ex-dividend in just 4 days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for the payment of a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. In other words, investors can buy Western Union shares before December 16 in order to qualify for the dividend, which will be paid on December 31.
The company’s upcoming dividend is US $ 0.23 per share, continuing the past 12 months when the company has distributed a total of US $ 0.94 per share to shareholders. Based on the value of last year’s payouts, Western Union shares have returned about 5.2% on the current share price of $ 18.21. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! Accordingly, readers should always check whether Western Union has been able to increase its dividends or if the dividend could be reduced.
Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, then the dividend could be unsustainable. Fortunately, Western Union’s payout ratio is modest, at just 47% of profits. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for 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 usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
NYSE: WU Historical Dividend December 11, 2021
Have Profits and Dividends Increased?
Companies with constantly increasing earnings per share usually make the best dividend-paying stocks because they generally find it easier to increase dividends per share. If profits 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 increase by 4.4% per year over the past five years. Profit growth has been weak and the company pays more than half of its profits. While it is possible to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio, the poorer the prospects for future growth of a business.
Another key way to measure 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 around 13% per year on average. It’s encouraging to see the company raising its dividends as profits rise, suggesting at least some corporate interest in rewarding shareholders.
Does Western Union have what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it’s interesting that Western Union pays less than half of its earnings and more than half of its cash flow to shareholders as dividends. Overall, it’s hard to get excited about Western Union from a dividend standpoint.
On that note, you’ll want to research the risks Western Union faces. Every business has risks, and we have 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 highest dividend-paying stocks with a yield above 2% and a dividend ahead.
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