DIVIDEND POLICY

Telefónica establishes the shareholder remuneration policy taking into account the Group's earnings, cash generation, solvency, liquidity, flexibility to make strategic investments, and shareholders and investors’ expectations.

In the last 10 years, Telefónica has combined different types of remuneration to the shareholders, such as dividend in cash, "scrip dividend", or share buyback program and amortization of treasury stock, payable in different tranches each year.

As of March 2017, the Board of Directors of Telefónica, S.A. defined the payment period for the annual dividend, so that the dividend payment in the second quarter will take place in June, and the dividend payment in the fourth quarter will take place in December, in both cases on or before the third Friday of the corresponding month.

In February 2020, Telefónica confirmed its compensation policy for 2019, which consists of an amount of €0.40 per share, payable in December 2019 (€0.20 per share) and in June 2020 (€0.20 per share). The 2020 policy was also announced in February 2020, and will consist of a dividend payment of €0.40 per share, payable in December 2020 (€0.20 per share) and in June 2021 (€0.20 per share). (*)

Under the current circumstances, and after the corresponding analyses, it has been concluded that the Company has a sufficiently healthy cash position to maintain the previously announced dividends payment. However, for reasons of financial prudence in this context of the COVID-19 health crisis and in order to grant greater flexibility in regard to cash outflows and different alternatives for the shareholders, it had been deemed appropriate to propose for approval of the Annual General Shareholders Meeting held on June 12, 2020 the implementation of the payment of sums to be made during this fiscal year 2020 through separate scrip dividends (the “Telefónica Flexible Dividend”), which as is known provides all shareholders with the choice of receiving the relevant compensation in shares or in cash, at the shareholder’s discretion.

The Annual General Shareholders Meeting held on June 12, 2020 approved the Proposals of the scrip dividend.

On the scrip dividend starting in June, the last trading date for the shares of Telefónica with a right to participate in the scrip will be June 16, 2020. The final price of Telefónica's undertaking to purchase the free allotment rights comes to the gross amount of 0.193 euros per share, in accordance with the formula approved at the General Shareholders' Meeting.

(*) The adoption of the corresponding corporate resolutions will be proposed in due course, announcing the specific payment date.