Freedom Broker issues trade idea to buy Western Union, highlighting dividend yield

Freedom Broker has issued a trade idea to buy Western Union, the global financial services and communication company that specializes in money transfers and payment solutions, which has a capitalization of $2.8 billion. The stock offers an outstanding dividend yield and upside of 15% over a two-month horizon.

Investors should look to take advantage of what is likely to be a rise in Western Union stock, Freedom Broker has outlined in a note. Since the beginning of the year, shares are off more than 20% at $8.40 apiece, but a rebound looks to be in store this summer. Freedom Broker thinks Western Union could jump to $9.70 per share in the next two months, which is 15% higher than the close on Wednesday, June 18 (yesterday, June 19, U.S. exchanges were shut). 

In April, Western Union paid the final installment of about $200 million in tax liabilities on «certain previously undistributed foreign earnings.» This was related to the 2017 U.S. tax reform that left the company owing the government $800 million, it wrote in its 2024 annual report. Western Union decided to make the payments in installments. Still, it acknowledged they «adversely affect our cash flows and liquidity and may adversely affect future share repurchases.»

Now that the final installment has been paid, the company has more flexibility to use free cash flow to enhance shareholder value through buybacks and/or M&A, Freedom Broker argues. 

In the first quarter of 2024, for example, the company spent $76.7 million on share buybacks. Meanwhile, it announced a quarterly dividend of $0.235 per share in May. That translates to an outstanding dividend yield of 11.2%, Freedom Broker pointed out. As of March 31, Freedom Broker adds, Western Union had $1.29 billion in cash and cash equivalents, while the company spends only $80 million per quarter on dividends. 

Only three out of the 21 Wall Street analysts covering Western Union rate the stock a «buy,» according to MarketWatch data. The other recommendations are split, with nine «holds» and nine «sells.» The average target price of $10.58 per share implies upside of more than 25% versus current quotes.