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2 Dividend Stocks in the Competitive Financial Transaction Space

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The looming recession fears, ongoing geopolitical turmoil and inflationary pressure are affecting consumer spending, which might hurt companies in the Financial Transaction Services industry. The Russia-Ukraine conflict also put pressure on the transaction volumes of the firms that had operations across Russia.

To counter the volatile situation, financial transaction companies are depending on capturing a greater market share, which can support their volume growth. The race to win more customers has led to higher competition and more spending on advertisements, technologies and client benefits. Industry players remain under constant pressure to develop enhanced capabilities that might lend a competitive edge over competitors. An elevated expense level might hamper the margins of the industry players.

Yet There’s Hope.

More and more people opting for digital payment methods are helping these companies grow. The COVID-19 pandemic triggered the demand for contactless payments, which are quick, easy and cost-effective in nature. Multiple flexible digital payment options like cryptocurrency, buy now, pay later (BNPL) and others, based on technologies like biometrics, QR code, artificial intelligence and blockchain, are providing consumers with different payment methods. Hence, the financial transaction services stocks are well-poised to gain from launching these diversified payment solutions.

Also, resumption of business activities, higher pent-up demand and improved personal savings made during the pandemic might boost transaction volumes. Affirm Holdings, Inc.’s (AFRM - Free Report) 2022 summer consumer spending trends revealed a growing interest in traveling. AFRM, a payments solution provider, reported that travel was in the second spot on the top spending list, while furniture and homewares were third and apparel was in the fourth position. Moreover, the global remittance market is rapidly growing at present. Companies investing in their digital platform to stay ahead in the fast-changing remittance market will stay above the competition.

Amid the current market scenario, investing in high-quality dividend stocks will offer a steady source of income and provide protection against downside risk. These stocks are generally less volatile and hence are dependable when it comes to long-term investment planning.

In this backdrop, investing in high-quality dividend stocks like Fidelity National Information Services, Inc. (FIS - Free Report) and The Western Union Company (WU - Free Report) might fetch you promising returns.

Dividend Investing is Pivotal

Companies with solid dividend track and profit-generating abilities are less susceptible to market swings and uncertainties. A sustainable business model, free cash flow generating abilities, growing profits, strong balance sheet and other outstanding fundamentals make these companies promising choices. These stocks are safe bets to create wealth.

However, one should keep in mind that not every company can keep up with its dividend-paying momentum. As such, a cautious strategy is required to select the best dividend stocks with steady return potential.

Here are two dividend-paying key picks that made the list from the Financial Transaction Services industry.

Fidelity National: Based in Jacksonville, FL, Fidelity National provides banking and payments technology solutions, processing services and information-based services to the financial services industry. In January 2022, Fidelity announced a 21% sequential hike in the quarterly dividend. The company aims to increase its expected annual dividend growth rate to more than 20% per year. This will result in an incremental dividend payment of nearly $100 million in 2022. Currently, the dividend yield of the company is 2.1% and the payout ratio is at 27%. FIS's annualized growth rate was 8.4% over the past five years. (Check Fidelity National’s dividend history here).

Fidelity National’s strong position in the financial and payments solutions business, backed by a superior product portfolio and digitization efforts, bodes well. In the trailing 12-month period, it generated free cash flows of $3,476 million. The Zacks Rank #3 (Hold) company’s inorganic growth strategies are encouraging. The Zacks Consensus Estimate for 2022 earnings per share implies year-over-year growth of 8.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Western Union: Headquartered in Denver, CO, Western Union is a leader in global money transfer. It has made substantial investments to build a robust digital arm, which delivers accelerated and affordable money transfer services. WU enhances shareholders’ value through share buybacks and dividend payments. In the trailing 12-month period, it generated free cash flows of $901 million. Currently, the dividend yield of the company is 6.4% and the payout ratio is at 41%. WU's annualized growth rate was 7.1% over the past five years. (Check Western Union’s dividend history here).

Western Union has started the implementation of a new Global Strategy, designed to drive efficiency, profitability and long-term revenue growth. These initiatives are expected to generate annual cost savings of approximately $150 million by 2022. The Zacks Rank #3 company’s tactical cost management efforts compelled management to hike its adjusted operating margin forecast for this year. WU’s Zacks Consensus Estimate for 2022 earnings per share currently stands at $1.80. It beat earnings estimates in each of the past four quarters, with the average surprise being 17.4%.

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