WU Western Union Company

Yesterday, the world’s leading money transfer company Western Union Co. (WU) declared a hike of 14% in its quarterly dividend to 8 cents per share, payable on June 30, 2011 to shareholders of record as of June 17, 2011.

Western Union’s recent dividend hike reflects strong cash flow from operations of over $1 billion for the past three years. For full-year 2011, management expects GAAP cash flow from operating activities to range from $1.2 million to $1.3 billion.

In the fourth quarter of 2010, Western Union had increased its quarterly dividend by 16.67% to 7 cents per share. Based on the recent dividend hike, Western Union’s dividend yield will be 1.57%, up from the current 1.50%.

While Western Union has maintained its dividend hikes, one of its significant peers, Moneygram International Inc., (MGI), has not indulged in dividend payment at all.

Western Union has also been aggressively managing capital through continuous share repurchases. It purchased 5.3%, 3.5% and 7.9% of the outstanding shares in the years 2010, 2009 and 2008, respectively.  On February 1, 2011, the company’s Board of Directors authorized an additional $1 billion common stock repurchase program till December 31, 2012.

During the recently concluded first quarter 2011, Western Union’s earnings came in at $0.35 per share, surpassing the Zacks Consensus Estimate as well as the year-ago quarter’s earnings. The result benefited mainly from a strong margin improvement led by the Consumer-to-Consumer (C2C) segment. 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.

The stock of Western Union carries a Zacks # 3 Rank, which translates into a short-term “Hold” recommendation. Further, over the medium-to-long term, we suggest the investors to maintain a “Neutral” position.

Western Union (NYSE:WU)
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