Why Fund Managers Loaded Up On Western Union
Several influential fund managers have picked up shares of Western Union in recent months, a sign that the company has retained its reputation as a solid, dividend-paying investment. It’s quite a feat for a company that took shareholders through a sudden 33% plunge barely six months ago and still hasn’t recovered, as seen in a stock chart.
Recent SEC filings compiled by dataroma show that John Rogers of Ariel Appreciation, William Frels of Mairs & Power Growth, Charles Bobrinskoy of Ariel Focus and Mark Hillman of Hillman Focus added to their Western Union stakes in the first quarter this year. For Bobrinskoy, Western Union represented almost 5% of his portfolio at the end of the quarter. As YCharts' Carla Fried reported, Western Union is a dividend star of the financial sector.
Western Union shares went into free fall last October when an earnings report missed revenue estimates and noted intense competition for its core money-transferring services. The company cut its full-year earnings estimate on the back of falling prices. The year-end earnings announcement in February was more encouraging or, at least, less shocking. Western Union said to expect revenue and profit declines in 2013 but growth in 2014 and 2015. The company is optimistic that its mobile apps and other digital services will build its customer base while the company cuts overall costs.
Western Union shares remain attractive mainly because the company generates lots of cash that management vows to share generously with shareholders. The company has reliably raised its dividend annually. With October’s bad news, it announced a 25% dividend increase and stepped up a share repurchase program. The dividend yield now stands at 3.4%, and Western Union has an admirably low payout ratio.
Among industry analysts, the outlook for Western Union remains mixed. Deutsche Bank upgraded the shares with a buy recommendation in February, shortly after Goldman Sachs downgraded them to sell. Along with Nomura Securities, Goldman worries about the long-term viability of Western Union’s core money transfer business at a time when the number and variety of competitors is rising fast, causing prices to fall. Companies ranging from pre-paid card company Green Dot (GDOT), Visa (V) and Google (GOOG) all have products now that take away Western Union’s customers. Nomura reiterated a hold rating on Western Union shares in March, but it calls the company a value trap.
Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at firstname.lastname@example.org.