Western Union. The name conjures up images from a distant past. Fingers tapping out messages in Morse code for transmission over telegraph lines across the continent. Saddened families receiving heartbreaking telegrams informing them of the death in battle of a beloved son or daughter. Smartly dressed boys delivering yellow envelopes containing urgent news.
All part of history, and certainly not relevant in the age of e-mails and the internet. That’s true, except the company has reinvented itself. It is now one of the leaders in national and international financial transfers, moving money to more than 200 countries and territories, in 130 currencies. The company allows customers to send transfers online, through its app, or in person from its many locations. It offers competitive foreign exchange rates and real-time tracking of your encrypted transfer.
It’s my top pick this month for readers of my Income Investor newsletter. Here are the details.
Western Union Co.
- Current price: US$17.96
- Annual payout: 94 US cents
- Yield: 5.2 per cent
- Risk rating: Moderate
The business: The company was founded in 1851. Ten years later, what was then the Western Union Telegraph Co. completed the first transcontinental telegraph line and began carrying messages from one end of North America to the other. Its money transfer service, the focal point of today’s business, was introduced in 1871. In 1974, it started using satellites to transmit messages and transfers even more quickly.
The security: We recommend the common shares of Western Union. The company went public in 2006 and trades on the New York Stock Exchange under the symbol WU.
Why we like it: The 5.2-per-cent yield for starters. That’s a high return for a quality stock these days. Plus, WU has an excellent dividend history – it has increased its payout every year but one since it went public.
Price is the second reason to look at this stock now. It’s trading at the lower end of its normal range – a year ago at this time it was close to US$27.
Financial highlights: The Denver-based company released third-quarter financial results on Nov. 2 and updated its full year guidance for 2021.
The company’s third-quarter revenue was US$1.3-billion, up 2 per cent on a reported and constant currency basis. Third-quarter growth was led by digital money transfers, which continued to deliver double-digit expansion, and the business solutions segment, which is to be sold in 2022. Those gains were partly offset by reduced retail money transfers owing to the slow pace of economic recovery.
WU recorded third-quarter net income of US$232.7-million (57 US cents a share), up from US$228.6-million (55 US cents) in the same period of 2020.
“While economic conditions and industry trends have not fully recovered, third-quarter results highlight the resilience of our millions of customers around the world, who continue to provide much needed support to loved ones back home,” outgoing CEO Hikmet Ersek said in a news release.
Outlook: The current financial picture should be little changed for the rest of this year. The company forecast a modest increase in full-year adjusted earnings per share to between US$2.05 and US$2.10, from a previous range of between US$2 and US$2.10.
Risks: This is a well-established business, with millions of users worldwide. The main concern of investors is market risk, although that is reduced by the fact the stock is at a relatively low point in its normal trading cycle and has a low price-to-earnings ratio of 9.25.
Distribution policy: Dividends are paid quarterly, in March, June, September and December.
Tax implications: A 15-per-cent withholding tax will be applied to dividends unless the shares are held in a retirement plan, such as a registered retirement savings plan or registered retirement income fund. (Tax-free savings accounts are not recognized as retirement plans.)
Who it’s for: This stock is suitable for investors seeking dependable U.S. dollar cash flow.
How to buy: The stock has an average daily volume of almost 5.7 million shares. Any broker can acquire shares for you.
Summing up: A stable company with an international business, a strong yield, and a history of consistent dividend hikes. What more could you want?
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe
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