Overlooked and Undervalued: Why Western Union Deserves Attention

Western Union (NYSE: WU) had a good thing going for a long time. When people needed to send money to loved ones or others far away, it was one of the best options, if not the only one. But times have changed. Enter fintech (financial technology) companies, which let people send money easily via apps on their smartphones, among other innovations.

Times have been tough for Western Union lately, and the stock has averaged annual losses of 10% over the past five years. Ouch.

Image source: Getty Images.

Still, it's worth considering the stock for your long-term portfolio -- for at least one key reason.

A heavenly dividend

The key attraction for me with Western Union is its dividend. It recently sported a fat dividend yield of 10%.

Better still, its payout ratio, the portion of its earnings paid out in dividends, was recently just 41%. That's good, because when a payout ratio is close to or exceeds 100%, it's cause for concern, as that's not sustainable and suggests that a dividend cut may occur. The company is profitable, too.

To be fair, a cut could still occur with Western Union, as business is not exactly booming at this point. But even a 50% cut would still leave investors with a 5% dividend yield at current rates. (You should be suspecting at this point, correctly, that this isn't a buy-it-and-forget-it kind of investment.)

Where Western Union impresses

There's more to like than just the dividend. Check out how the company describes itself: "Our leading cross-border, cross-currency money movement, payments and digital financial services empower consumers, businesses, financial institutions and governments -- across more than 200 countries and territories and nearly 130 currencies -- to connect with billions of bank accounts, millions of digital wallets and cards, and a global footprint of hundreds of thousands of retail locations."

It has proven that it has staying power, having launched as a telegraph business before the Civil War, back in 1851. Can it stay current even now? It's certainly trying, with its own fintech operations.

Its fourth quarter was mixed, with revenue down 5% year over year, but CEO Devin McGranahan noted, "We strengthened our Consumer Services offerings, expanded our owned retail footprint, and accelerated our transition to a more digital-first operating model. Looking ahead to 2026, we are confident in our ability to execute against our Beyond strategy as we expand our capabilities, drive operating efficiencies, and position the company for sustainable long-term growth."

The company's struggles have left its stock price looking attractive -- though some might argue that it's a value trap: Its forward-looking price-to-earnings (P/E) ratio, for example, recently 5.3, is well below its five-year average of 7.3.

Everything isn't rosy, though

Western Union is not a no-brainer investment. Your brain is required. Because it's still facing headwinds, such as the current economic environment that's not so friendly to immigrants, many of whom send money home to their families. Another issue is competition on the fintech front, with frequent innovations that may hurt Western Union's future even more.

Consider Western Union for its currently fat dividend, but dig deeper before you invest.

Selena Maranjian has positions in Western Union. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.