Updated on June 26th, 2024 by Bob Ciura
High yield stocks with dividend yields above 5% are appealing for income investors. However, not all high dividend stocks are created equal.
Some have secure dividend payouts, but others are in questionable financial condition, leaving shareholders vulnerable to a dividend cut in a downturn.
With this in mind, we created a full list of high dividend stocks.
Western Union (WU) is part of our ‘High Dividend 50’ series, where we cover the 50 highest yielding stocks in the Sure Analysis Research Database.
You can download your free full list of all high dividend stocks with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:
Western Union (WU) has been a high dividend yield stock for several years. The company has struggled with growth in a mature business, but it is profitable.
The stock’s dividend yield is now over 7%, supported by a reasonably conservative payout ratio. Despite rising competition, the dividend yield looks safe in the near term.
Business Overview
The Western Union Company is the world leader in domestic and international money transfers. The company operates in three segments Consumer-to-Consumer (C2C), Business Solutions, and Other. The company was founded in 1851.
The C2C business consists of money transfers between consumers using the firm’s global network of agents, the website, and the app. Western Union has roughly 550,000 third-party agents globally and operates in more than 200 countries.
In addition, the app and website allow digital money transfers between consumers. The company serves about 150 million consumers.
The Business Solutions segment allows payments and cross-border payments for businesses. The Other segment is mainly bill payments in the US and Argentina and money orders.
Western Union reported better than expected Q1 2024 results on April 24th, 2024.
Source: Investor Presentation
Total revenue grew 1% to $1.049 billion, while diluted GAAP earnings per share increased 3% to $0.41 compared to the prior year. Revenue rose on higher retail and branded digital transactions.
CMT revenue climbed 3% to $962 million due to 6% higher transaction volumes. Separately, cross border revenue grew 7% in constant currency. Consumer Services revenue rose 5%. The company launched a strategic relationship with Swiss Post and a wallet-based account in Brazil.
The firm is also implementing its Evolve 2025 Strategy to return to growth of its retail and branded digital services. Management upped adjusted earnings per share guidance at $1.70 – $1.80
Growth Prospects
Western Union’s main C2C business is mature but profitable. In addition, the company is by far the leader in agent money transfers. It is several times larger based on revenue than the number two competitor.
Western Union makes money by transferring money and taking a small fee it shares with agents. However, both volumes and revenue growth are flat-to-declining due to increasing competition from electronic money transfers and new players in that space.
Theoretically, adding agents and additional geographies should lead to incremental growth. Therefore, the company actively adds partners to build its network and maintain its scale. For instance, Western Union is partnered with Walmart.
On the other hand, digital money transfer operations are increasing. The company focused on this business a few years ago and now has an app and the WU dot.com website.
As a result, digital money transfer volumes and revenue are growing. Western Union has invested in response to this trend.
In the most recent quarter, Branded Digital Money Transfer CMT revenues increased 9% as volumes rose 13%. Digital revenue is now 23% of total CMT revenue and 31% of transactions.
Competitive Advantages
Western Union has several competitive advantages. First, the name and brand are well-known worldwide for money transfers, and it is the market leader. Western Union probably has the highest name recognition in the money transfer business.
Next, Western Union is the most significant player in the C2C money transfer business. This fact confers an advantage in operating and cost efficiencies. The extensive network means adding additional agents or consumers only results in incremental cost increases.
As a result, Western Union’s operating margins of roughly 22% are higher than its main competitor.
Lastly, Western Union’s business model calls for the use of third-party agents. This point means costs are low, and little capital is needed for investment.
Furthermore, the extensive network and broad geographic presence mean the company can offer money transfers almost anywhere.
In less developed countries, having an extensive agent network is a significant advantage since an agent is needed to send money and receive money.
Dividend Analysis
Western Union pays a high dividend but the company has not grown the payout in several years. Still, the current 7.8% yield is very attractive on the stock.
This value is greater than the 5-year average dividend yield for Western Union, and is also roughly six times the ~1.3% average dividend yield of the S&P 500 Index.
The company’s dividend is safe from the perspective of earnings. The payout ratio is about 54% based on the forward EPS estimate of $1.75 for 2024.
Western Union’s balance sheet is in a good position from the perspective of dividend safety. As of the most recent quarter, long-term debt was about $2.54 billion of long-term debt that is partially offset by $1.10 billion of cash
and equivalents.
Interest coverage is about 7.9x and the leverage ratio is about 1.35x. Overall, the dividend payout appears secure based on the current earnings trajectory of the company.
Final Thoughts
High-yield stocks are appealing for investors seeking income. The problem is many have deteriorating businesses and weakening dividend safety metrics.
Many times, what was once an attractive yield becomes a dividend trap due to a dividend cut or suspension.
However, Western Union’s dividend safety metrics are solid, and the 7.8% yield is very high.
Western Union is the market leader in consumer money transfers with its extensive agent network. The company is growing its digital money transfer business and should keep its scale and leadership.
Overall, Western Union is a good income stock for investors seeking a high dividend yield.
If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:
High-Yield Individual Security Research
- 20 Highest Yielding Monthly Dividend Stocks
- 10 Super High Dividend REITs
- 5 Highest Yielding Royalty Trusts
Other Sure Dividend Resources
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- High Dividend Stocks: 5%+ dividend yields
- Monthly Dividend Stocks: Individual securities that pay out every month
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more