Free Custom «Dividends and Share Repurchase» Essay Paper

Depending on the market conditions and specifications, Starbucks can repurchase shares from the shareholders. The repurchase is undertaken in the company's common stock, which is defined in its policy framework. Management and the board of directors believe that the company's strong cash flow is attributed to the hard work and commitment of the staff. The cash flow is generated from existing investments, operations, and innovative activities. The company also borrows cash from external financiers in order to have sufficient capital requirements to run its core business operations. Starbucks Company has clearly outlined the policy regarding share repurchase, but it is not a guarantee for the board of directors to indulge in this process. This depends on the availability of the disposable cash that the company is willing to use in increasing the number of shares for the company (Brigham & Houston 26).

Over the past decade, the policy has significantly changed with the company focusing on repurchasing the shares from the public. For instance, in the report released in 2010, the management increased the number shares that were authorized to be repurchased from 6.3 million shares to 15 million shares. Repurchasing of the shares has been attributed to the company’s strong financial position as its cash flow has increased tremendously over the past five years (Croson and Needles 65). The payment of dividends to its shareholders has been done promptly. Following the business operations in 7th April 2010, the company announced that its shareholders were to receive their dividends in cash by 23rd April 2010. Currently, the economy is competitive, and losing the confidence of shareholders will imply that the reputation of the organization will be at stake. When the Starbucks reduces the number of shares that the public owns, the risk of losing the company’s reputation will be minimized (Starbucks Annual Report).

 

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As the company is involved in roasting of Arabica Coffee, total control of its operations is fundamental. This will maximize its profits, as it will invest in profit yielding investment without consulting the shareholders or third parties. Therefore, the management should continue repurchasing its shares to enhance innovation and investment on the new platforms, while undertaking its core operation in the society.