Taking an encouraging step towards gaining investor confidence, on Wednesday Western Union Co. (WU) announced a 50% hike in its quarterly dividend to $0.06 per share, up from $0.04. Additionally, the company board has also sanctioned a $1 billion share repurchase program, spread across three years. While the quarterly dividend will be payable on Dec 30, 2009 to shareholders of record as on Dec 21, 2009, the three-year share repurchase program will be effective Jan 1, 2010.
The announcement on the backdrop of in-line third quarter earnings gives us a fair view of the company’s strong capital position and a steady growth strategy. Nevertheless, the company did not remain untouched by the impact of the difficult economic environment prevailing across the globe.
During the last few quarters, the Western Union’s consumer-to-consumer and global business payments’ segments were adversely affected by the ongoing weakness in global unemployment rates. This resulted in fewer transactions as well. However, the company has sustained the global financial crisis to a large extent and did not come out a loser.
Strategic acquisitions and timely introduction of new products have been major growth drivers. The company’s business operations and earnings results were also more finely tuned compared to its peers like American Express Co. (AXP) and Moneygram Intl Inc (MGI).
Moneygram Intl Inc incurred heavily on trial and litigation costs while American Express’s billed business is still showing a deteriorating trend. This explains the sluggishness experienced across corporations. We believe that the early signs of economic recovery will help the company gain traction by way of improvement in its transaction, revenue and pricing models.
As an initial step, the Western Union board has decided to pay back value to its investors through share repurchases and dividend hike, thereby retaining their confidence. Thus, although near term sluggish environment could persist; Western Union has the potential for strategic and steady growth in the long term.
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