Telefonica: The Dividend Decision

The case portrays the situation of Telefónica, Spain's largest company, in November, 1998, when it is time to decide on the dividend for the year. The situation is particularly interesting because, on the one hand, Telefónica was generating large profits; on the other hand, it was under intense competitive pressure both in the home market and abroad. The case aims to encompass most of the important elements that any company must consider when setting its dividend policy. Important factors such as dividend smoothing, signaling effects and clientele effects can be discussed. The case also illustrates many other important restrictions that companies must take into account when setting their dividend policy, such as financial constraints, growth opportunities and restructuring needs, among others. This is a full revision of the earlier case titled "Telefonica: The Dividend Decision" (F-697-E).