Telefonica S.A. (TEF) False Dividend Announcement

Telefonica S.A. (TEF) False Dividend Announcement

Telefonica S.A. (TEF) False Dividend Announcement


Frank Voisin is the author of the popular value focused website Frankly Speaking, found at

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Yesterday, Spanish telecommunications juggernaut Telefonica S.A. (NYSE: TEFannounced that it will be giving its shareholders the choice between accepting the upcoming dividend in cash, or in shares as a scrip dividend. Normally, I wouldn’t make note of something this mundane, but I was caught off guard by this statement by the company’s Chairman (emphasis mine):

Over the course of the Shareholders’ Meeting, which was held in Madrid, the Chairman of Telefónica and its Board of Directors, César Alierta, presented a report in which he described as exceptional the dividend yield offered by the Company, stating that it is “the highest return of the world’s top one hundred companies by market capitalisation, underlining our Company’s steadfast commitment to its shareholders.”

This statement is disingenuous at best, intentionally misleading at worst. A dividend yield has two components, one being the actual dividend payment and the other being the market price of the company’s equity. The Chairman is implying that the company is so committed to its shareholders that it has chosen to pay out a shockingly high dividend as reward.

This is not the case.

Instead, the reason for the company’s high dividend yield is that the company’s share price has tanked by 42% over the last year. If you hold the dividend payout steady, this has the effect of increasing the yield (due to a lower denominator). None of this implies a “steadfast commitment to shareholders.”

Making matters worse is the fact that the company’s actions are diametrically opposed to what the Chairman is suggesting; the company is actually cutting its dividend from the prior year!

I am not suggesting that the company shouldn’t be cutting its dividend (given the price decline, I would favour eliminating the dividend and diverting that capital toward share repurchases), but I am suggesting that transparently misleading investors about the company’s largesse is wrong.

One more thing from the company’s marketer-in-chief (emphasis mine):

According to César Alierta, this dividend “translates into a 13.3% yield at the current share price(*), which means that Telefónica remains an excellent investment opportunity even in the challenging current economic circumstances.”

The emphasized statement does not logically flow from the discussion of yield, which on its own is an insufficient measure of an investment (there needs to be consideration for the sustainability of that dividend!).

It worries me to see a company’s Chairman make misleading statements like these, seemingly with the purpose of fooling investors. What do you think?


Author Disclosure: None

At twenty years old, Frank opened the first of what would eventually become four successful restaurants while completing concurrent undergraduate degrees. He later sold these businesses and returned to school to complete concurrent JD and MBA degrees. During this time, he wrote and passed the three CFA exams. Frank takes a value perspective in his commercial real estate endeavours, hunting for unloved and undervalued investment opportunities to add to his investment group’s portfolio. Frank has traveled extensively and lived in Auckland, London, Toronto, and is currently living in Hong Kong with his wife, Danielle, a successful entrepreneur, MBA, author, blogger and international manager for one of the largest global financial institutions. Frank splits his time between consulting and searching for new value investments.
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