Are public companies failing shareholders?

Hi guys,

I'm fairly new to corporate finance and equity investing, so excuse me for any ignorance or lack of understanding. However, there's something that I've noticed in regards to public companies that doesn't quite make sense to me, and it relates to retained free cash flow.

Say we've invested in a profitable company, and at the end of the year the company has made a healthy amount of levered free cash flow for us as the owners. If my understanding is correct, the management has two options:

1. Directly return the cash flow to shareholders via dividends and share buybacks
2. Retain and reinvest the cash flow back into the business as long as the management see adequate investment opportunities that can get better returns on our money than we can elsewhere

If this is the case, why do we see so many public companies that are retaining a considerable amount of levered free cash flow each year, however the LFCF is hardly increasing? Much like we can calculate return on retained earnings, I've been running the same calculation and calculating return on retained levered free cash flow, and for a fair amount of companies, it's hovering around 0%.

There seems to be a lot of public companies that have been making the same amount of LFCF per share for almost a decade, yet they continue to retain and reinvest a considerable amount of free cash flow each year rather than return it to us directly. Surely this is considered terrible capital allocation by management and a complete waste of our money?

In a private company if our LFCF had plateued year after year despite our constant reinvestments, wouldn't we just take the hint that we were making poor investment decisions within the business and it's better to instead return 80-90% of that cash flow as dividends? Rather than just destroy value and waste our cash year after year. Why would I reinvest my cash back into the business and get a 0% return, when I could take that cash and invest it into the broad market or another investment opportunity and make 6% and above?

Am i missing something here guys or have you noticed it too? Any insight into this would be great, thanks!

The formula I used to calculate return on retained levered free cash flow was as follows:

Return on retained LFCF = (most recent LFCF per share - first period LFCF per share) / (cumulative LFCF per share for the period - cumulative dividends paid for the period)