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).

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, was executed on June 18 as the last trading date for the shares of Telefónica with a right to participate in the scrip was June 16, 2020.

On the scrip dividend starting in December, was executed on December 14 as the last trading date for the shares of Telefónica with a right to participate in the scrip was December 10, 2020.

In February 2021, Telefónica confirmed the second tranche of the compensation policy for 2020, which consists of an amount of €0.20 per share, payable in June 2021, by means of a voluntary scrip dividend. In this regard, the last trading date for the shares of Telefónica to have the right to participate in the scrip dividend was May 31, 2021, and the period for trading the free allotment rights began on June 1, 2021, trading the shares ex-date as of such date. Furthermore, it was announced the dividend policy for 2021 which will consist of a dividend payment of €0.30 per share, payable in December 2021 (€0.15 per share) and in June 2022 (€0.15 per share) through a voluntary scrip dividend.(*)

In May 2021, the share capital reduction in the amount of 82,896,466 euros by means of the cancellation of 82,896,466 own shares was executed. (those shares represented 1.5% of the share capital on that moment).

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