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Dividends are nice ... but not everything

Western Union is probably one of the best examples in my portfolio. Dividends are being paid out again today... fortunately Western Union does this on a quarterly basis. 💵

-> Dividend yield: approx. 11%

-> P/E ratio: approx. 5.5

When I joined the company, the fundamentals were only marginally "worse". Almost too good to be true. High dividend yield and high price potential ... that was my thought at the time. 📈

This bet didn't work out. Today, the dividend yield is even higher and my share price has fallen by around 25% (although fortunately this is somewhat offset by the dividend received).

Nevertheless, I have learned to look twice at high dividend yields. There is nothing free in the market. As far as Western Union is concerned, I still can't figure out what justifies this fall in the share price. I therefore continue to hold the share and hope for a bottom soon.

You don't just have winners $WU (-0,87%) ... 😉

30.09

Western Union

Recebido x2266 Dividendos em US$ 0,235

US$ 532,51

4 Comentários

Cashflow I.@Cashflow_Investor

In the long term, the share price usually follows a company's profit growth. Western Union is a typical example: both turnover and the share price have been steadily heading south for years.

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Part_Time_Joe@Part_Time_Joe

@Cashflow_Investor That is correct if you look at the total turnover. But take a look at profit and sales per share!

While total turnover has fallen by around 20% in the last 10 years, it has risen by 20% per share! The same goes for profit.

At the end of the day, the company is generating massive amounts of cash and will continue to do so over the next few years. The value of the share should correspond to the DCF and this is significantly higher than the share price. Provided you assume that Western Union will still exist for a few more years.

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Cashflow I.@Cashflow_Investor

@Part_Time_Joe In 2005, the profit was around USD 934 million, and in 2024 it was also around USD 934 million. So over nine years, profit has not moved at all.
Earnings per share are only high because the company has bought back massive amounts of its own shares. However, this is of no use if sales ("top line") do not grow.

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Part_Time_Joe@Part_Time_Joe

@Cashflow_Investor You're absolutely right, but it shows just how much cash the company is generating!

The gap between intrinsic enterprise value and valuation is getting bigger and bigger, even though the intrinsic value is declining.

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