Major indices finish lower amid GE earnings disappointment >>> READ MORE

3 Stocks That Should Amp Up Their Dividends — And Soon!

Too much of these companies' cash is sitting on the sidelines

      View All  

Western Union

WesternUnion185It’s admirable to see a company save some cash for a rainy day. Sometimes, however, there’s not a lot of purpose in doing so.

Enter Western Union (WU), which reliably makes good money, but keeps a little too much of it.

It would be easy to assume the Western Union business model was a low-margin affair, leaving little room for dividends, let alone dividend growth. The money transfer business is surprisingly potent, though, with this company’s operating margins approaching 25%, and net margins near 18%.

And to be fair, it gives a decent chunk of it back. In 2010, it paid out 25 cents in dividends from the $1.36 per share it earned (18%). 2011’s dividend payout was 31 cents of the $1.84 the company earned per share (17%). And in 2012, Western Union’s dividend reached 42 cents per share, or 25% of earnings of $1.69.

Were it a tech or a pharmaceutical company, those payout ratios wouldn’t raise an eyebrow. For a cash cow like Western Union though, what could it possibly do with that hoard to actually grow the business? WU is sitting on a whopping $1.77 billion in cash, which is nearly 20% of the company’s market cap.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC