Western Union Hikes Dividend - Analyst Blog

Yesterday, the world's leading money transfer company Western Union Co. (WU) announced a hike of 16.67% in its quarterly dividend to 7 cents per share. The increased dividend will be paid on December 31, to shareholders' of record as of December 20.

Western Union's dividend is supported by its generation of strong cash flow from operations of over $1 billion for the past three years. For full-year 2010, management expects GAAP cash flows from operating activities of $900 million to $1 billion.

On the basis of the increased dividend, Western Union's dividend yield will be 1.50%, up from the current 1.30%. The company's peer Moneygram International Inc. (MGI), however, does not pay any dividend.

In the fourth quarter of 2009, Western Union increased its dividend to 6 cents per quarter, or 24 cents annually, a significant increase from the previous annual dividend of 4 cents per common share.

Western Union repurchased 6 million shares in the quarter at an average price of $16.15. About $486 million remains under the current stock repurchase authorization. The company has returned more than $630 million year-to-date to shareholders through dividends and share repurchases.

During the recently concluded third quarter, Western Union reported earnings of 37 cents per share, ahead of the Zacks Consensus Estimate by 3 cents. The company has reported impressive results in the first nine months of the year after suffering from the recent recession. Results reflected improving trends in the C2C business.

We believe Western Union's strong branding, network expertise, financial strength and restructuring initiatives will deliver long-term profitability. Moreover, transaction volume, revenues and pricing are recovering gradually. We remain encouraged by management's initiatives to increase investments in technology and expand agencies. However, given the sluggish economic recovery, any significant improvement will take time.

Western Union carries the Zacks #2 Rank, which translates into a Buy rating for the short term (1-3 months). However, considering the operating environment and the company's business model, we recommend a Neutral rating on the shares for the long term (6+ months).

 
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