Is Western Union an Underrated Financial Stock Investment Play?

If you are a dividend investor looking to maximize the income your portfolio generates, you have probably seen Western Union (NYSE: WU) pop up on your stock screens. After all, the stock's 9.7% dividend yield is dramatically above the S&P 500 index's (SNPINDEX: ^GSPC) tiny 1.1% average yield. Here's why it could be underrated as a dividend investment, and some risks to consider before you step aboard.

The good news about Western Union

Western Union's huge yield will be highly attractive to investors trying to live off their dividends. However, there's another reason to find that dividend attractive. It is backed by a dividend payout ratio of around 40%, which is entirely reasonable. The dividend was last increased in 2021, but with a yield over 9%, most income-focused investors probably won't mind this potential negative.

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The business itself is interesting, as well. The money transfer company charges a small fee for sending money between people, including those in different countries, and between people and businesses. In the third quarter of 2025, Western Union generated $1.03 billion in revenue, making it a very large business with many customers who depend on its services.

That said, Western Union's revenue has been trending lower for years. Increasing competition from digitally native competitors has been a material part of that story. However, Western Union has been updating its business model to provide a better digital experience. While it may have been late to the digital party, it now has a more competitive offering.

Unfortunately, dealing with new competitors has required lowering fees, which is another big factor in the declining sales trend. The company's gross profit margin has declined from around 45% a decade ago to the low 30% range recently.

Western Union looks relatively cheap

At this point, it looks like Western Union may have reset its business. However, growth is a big question mark and likely to be modest. So the yield is the big draw. That said, the stock's price-to-earnings and price-to-book value ratios are both below their five-year averages, suggesting a value opportunity.

For investors focusing on yield over all other factors, Western Union could have an attractive risk/reward profile. However, it will be important to monitor the company's dividend coverage and revenue trends. If revenue is indeed stabilizing, this could be a reliable cash cow stock. But don't buy it expecting to see material business growth, at least not in the near term.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.