Why Chipotle (CMG) Should Pay a Dividend in 2025
Chipotle Mexican Grill (NYSE:CMG) stands as a financial powerhouse in the fast-casual dining sector, with a cash position robust enough to warrant a dividend payout this year. Although many restaurant chains don’t pay a dividend, CMG is the only restaurant stock valued north of $10 billion (its market cap is over $67 billion) that doesn’t. […] The post Why Chipotle (CMG) Should Pay a Dividend in 2025 appeared first on 24/7 Wall St..
Chipotle Mexican Grill (NYSE:CMG) stands as a financial powerhouse in the fast-casual dining sector, with a cash position robust enough to warrant a dividend payout this year. Although many restaurant chains don’t pay a dividend, CMG is the only restaurant stock valued north of $10 billion (its market cap is over $67 billion) that doesn’t. It is a stance increasingly at odds with its bloated cash reserves and soaring free cash flow.
24/7 Wall St. Insights:
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Chipotle Mexican Grill (CMG) is the only large-cap national restaurant chain that doesn’t pay its shareholders a dividend.
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The Mexican food chain, with more than 3,7000 locations, has enormous cash balances and generates billions in free cash flow, far in excess of its growth needs.
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Chipotle can easily afford to pay make a payout and invest in its business without hurting itself.
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With a maturing business, mounting shareholder pressure, and ample liquidity to balance growth and returns, 2025 is the year Chipotle should join the dividend club.
Chipotle’s cash fortress
Chipotle’s cash position is enviable. The company reported $1.4 billion in cash, equivalents, and short-term investments in 2024, bolstered by $1.2 billion in free cash flow. Analysts project this to climb to $1.6 billion for full-year 2025, driven by strong 5.4% same-store sales growth and a record 304 new restaurant openings.
Operating cash flow hit $2.1 billion in last year, far outpacing capital expenditures of $594 million. With total debt at a manageable $4.2 billion — mostly operating lease liabilities — and a current ratio of 1.5, Chipotle’s financial health screams excess capacity. This war chest rivals peers like Starbucks (NASDAQ:SBUX) with $4 billion in cash reserves and a dividend that yields 2.5% yield, and McDonald’s (NYSE:MCD) at $1.1 billion and 2.2%, respectively, yet Chipotle hoards it all.
The case for sharing the wealth
First, a dividend would widen Chipotle’s investor base. Most national restaurant chains like Yum! Brands (NYSE:YUM), Dine Brands (NYSE:DIN), and Restaurant Brands International (NYSE:QSR) started payouts a decade or more ago, drawing income-focused funds and retail investors.
Chipotle’s stock, trading at $50 post its 50-for-1 stock split in June 2024, offers no yield despite a $67.4 billion market cap. A modest 25% payout ratio on projected 2025 earnings of $1.25 per share — about $0.31 or 0.6% yield — would keep growth intact while signaling stability. A dividend could quiet shareholder gripes about the Mexican food chain sitting on a pile of cash and boost appeal.
Second, Chipotle’s growth phase is stabilizing. Once a fast-growing upstart (it was originally spun off from McDonald’s in 2006), it now operates over 3,700 locations across North America and Europe, with fat gross margins of 40.5% and 17.3% operating margins. Moreover, Chipotle’s core model (burritos, bowls, and Chipotlanes) isn’t especially cash-hungry as 80% of the 315 to 345 new stores it plans to open in 2025 will leverage its proven drive-thru Chipotlane economics.
Free cash flow growth of 29.6% compounded annually over five years outstrips its expansion needs, mirroring Starbucks’ pivot to dividends once its footprint matured.
Third, shareholders deserve a return. Chipotle repurchased $1 billion worth of stock last year and still has another $1 billion remaining on existing repurchase authorizations. A dividend would complement this, offering consistent value over sporadic repurchases. A 50% payout of 2024’s $1.2 billion free cash flow, or $625 million, yields about $0.45 per share, or 0.8%, topping the S&P 500’s 2.2% average when paired with buybacks. When pizza chain Domino’s (NYSE:DPZ) can buyback stock and pay a dividend yielding 1.4%, it’s not surprising Chipotle investors ask why it can’t as well.
Management insists its cash pile fuels innovation, such as its Chipotlanes or Dubai expansion with Alshaya Group, but $1.2 billion in 2024 free cash flow dwarfs $600 million in annual capex. Starbucks innovates, such as its AI-driven menus, while paying dividends. Chipotle could, too, even with plans to have 7,000 restaurants across North America over the next few years.
Time to pay up
Chipotle’s $1.5 billion cash stash and $1.6 billion in projected 2025 free cash flow scream excess. A $0.31 dividend yielding 0.5% annually would reward investors, broaden CMG stock’s appeal, and reflect a mature business, all while leaving $1 billion for growth. As the last big-cap restaurant holdout, Chipotle risks shareholder ire when peers prove dividends and expansion coexist. In 2025, it’s time to share the guac.
The post Why Chipotle (CMG) Should Pay a Dividend in 2025 appeared first on 24/7 Wall St..
