Investors seeking high-yield dividend stocks have faced a challenging landscape in recent years, as a thriving stock market has driven yields down to a mere 1.3% for S&P 500 stocks. However, not all companies have seen their yields plummet. Two notable exceptions are Western Union and Royalty Pharma, which have experienced declining stock prices and subsequently rising yields. Let’s delve into these opportunities to determine if they’re worth considering.
Western Union’s stock has plummeted by over 50% since its 2020 peak, despite a 4% year-over-year increase in consumer money transfer transactions in the second quarter. Although the company boasts a substantial 7.9% dividend yield, investors should be cautious, as the payout has remained stagnant since 2021. Moreover, Western Union’s revenue growth has been hindered by Iraq’s ban on dollar transactions, resulting in a 9% year-over-year decline in total revenue.
With a rich history dating back to 1851, Western Union’s trusted brand allows it to charge higher fees and offer less competitive exchange rates. However, this advantage is eroding, as innovative rivals like Wise and Remitly gain traction. Wise reported an 18% year-over-year increase in transfer volume, while Remitly’s revenue surged 31% year-over-year. Western Union’s shrinking market share and declining earnings make it a questionable investment, despite its low valuation of 7.4 times trailing earnings.
On the other hand, Royalty Pharma presents a compelling opportunity. As a specialized lender to the biopharmaceutical industry, the company offers a 3% yield and potential for future growth. By providing loans repaid through royalties on future drug sales, Royalty Pharma has demonstrated a knack for selecting successful borrowers. With portfolio receipts rising 12% year-over-year and a history of 13% annual growth from 2010 to 2020, the company is poised for continued expansion. Royalty Pharma’s low valuation of 18.6 times trailing earnings, combined with its expected $2 billion deployment in 2024 to acquire royalties, makes it an attractive addition to a diversified portfolio.
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