The Walt Disney Company (NYSE:DIS) used to pay a consistent dividend and also buy back its own shares. However, for the past year and a half, since the end of 2019, it stopped returning capital to its shareholders. It’s now clear that DIS stock has not done very well as a result of this decision.

Here is why. The stock is up just 20% from the end of 2019 to today. It closed at $146.50 on Dec. 30, 2019, and as of Oct. 6, it was at $175.48. That 19.78% gain represents a compound average return over the past year and three-quarters of just 10.86% on a compound annualized basis.

That is subpar. For one, the S&P 500 is up 34.7% in the same time period, compared to the 20% gain by DIS stock. At least if the company paid its normal dividend then shareholders would have a chance of recouping some of that underperformance.

Disney Can Afford To Pay

Disney’s CFO, Christine McCarthy, made it clear during the Aug. 12 conference call with investors about the reason why it won’t pay the dividend or repurchase shares.

Here is what she said:

“However, for the time being, we don’t anticipate declaring a dividend or repurchasing shares until we return to a more normalized operating environment and our leverage is back to levels more consistent with a single A credit rating.“

Note she did not say that the company could not afford to pay the dividend. They are just worried about their credit rating.

Let’s look at this situation. During the first nine months of this fiscal year to June 30, Disney generated $4.445 billion, after adjusting for certain one-time items. This is at the end of its latest earnings release.

Cash Flow Is Sufficient to Cover the Dividend

Moreover, the cash flow report on page 5 of its latest 10-Q shows that the cash flow from operations was positive $2.93 billion. Granted this was lower than last year’s $5.95 billion cash flow, but it was still positive. In fact, according to Seeking Alpha, its cash flow from operations was $1.46 billion in the lastest quarter compared to just $84 million in January 2021.

Disney spent that cash flow on capex rather than dividends. Disney has typically paid semiannual dividends in the past. This is different from almost all other U.S. companies that pay quarterly dividends. The dividends usually cost about $1.587 billion every six months, or just $794 million on a quarterly cumulative basis.

Both the 10-Q and Seeking Alpha show that the company generated plenty of cash flow to pay these dividends as in the past.

Here is the bottom line about whether it can pay: It doesn’t want to, even though it can. Management is more worried about the credit rating. Or are they? They paid down just $515 million in debt this past quarter compared to $1.585 billion last quarter. Most of the cash flow went into capex spending.

What to Do With DIS Stock

This is not a shareholder-friendly management crew and board of directors. Their concerns are not about common stock shareholder returns. This could explain a good deal about why DIS stock is underperforming, as I have shown.

Don’t waste your time with DIS stock until management and the board wake up. They may need to study what Exxon Mobil (NYSE:XOM) did when it refused to cut its dividend during the Covid-19 crisis. Exxon even borrowed money to pay that dividend and keep up its capex spending. Now XOM stock is soaring.

It’s really nice that the company is transforming its business model and moving into streaming with great success. And yes, investments in parks, resorts and other hard capital assets require capex spending.

But Disney might use the same lame excuse at the end of the year that its credit rating is not at single-A so they can’t pay a dividend or buy back shares. If that happens, DIS stock is likely to continue lagging the market. Shareholders might want to force some changes at the top.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.