UPDATE 3-E.ON promises investors minimum div, shares climb

Wed Nov 10, 2010 9:52am EST

* Says dividend for 2010 to remain unchanged at 1.50 eur/shr

* 2011 div to be not below 1.30 eur/shr, 2012 div to be flat

* E.ON to expand into two new markets

* To grow in power production, energy trading outside Europe

* Shares rise 3.2 pct vs index up 0.6 pct

(Adds more analyst comments, details, Scottish & Southern)

By Peter Dinkloh

FRANKFURT, Nov 10 (Reuters) - Germany's E.ON (EONGn.DE), the world's largest utility, promised investors minimum dividends for two years, seeking to restore confidence in an industry unsettled by slumping prices and demand.

The triple whammy of lower industrial production, declining power and gas prices as well as prospects of higher taxes in markets such as Germany has made the utility sector .SX6P the worst-performing in Europe for the second year in a row.

New Chief Executive Johannes Teyssen is seeking to mend ties with investors and said on Wednesday the company's dividend for 2011 would drop no more than 13 percent to 1.30 euros a share, and its 2012 payout would remain at that level.

"As prospects for E.ON's operating business are weak the dividend was the last hope" for investors, said Equinet analyst Michael Schaefer.

Investors seemed unconcerned that the dividend pledge means E.ON might pay out more of its earnings than it had been planning, and E.ON shares rose 3.16 percent to 22.88 euros at 1448 GMT, outperforming the STOXX Europe 600 utilities index .SX6P, which was up 0.6 percent. [ID:nWEA8556]

"A stable dividend is something fantastic these days," said Herbert Wertz, who helps manage 260 billion euros ($358.3 billion) for insurer Generali.

The news also lifted German peer RWE (RWEG.DE) 2 percent while Britain's Scottish & Southern (SSE.L) advanced 3.3 percent after singing from the same hymn sheeet by reiterating its plans for its dividend payments in the years through 2013. [ID:nLDE6A909H]

By announcing 15 billion euros in divestments through 2013 E.ON bolstered confidence in its ability to dole out the payout as the picture for earnings in coming years remains bleak. [ID:nWEA8556]

The company will see at least three years of falling earnings, people with knowledge of the matter had told Reuters on Tuesday. [ID:nLDE6A826D] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a graph of industrial production and utility earnings click on: r.reuters.com/xuw34q

For a column on E.ON's strategy from BREAKINGVIEWS click on [ID:nLDE6A71J7]. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

As power prices in Germany, Europe's largest power market are close to six-year lows, and industrial production, a key measure for energy demand, dropped to the levels of early 2004 in Europe, E.ON is seeking growth outside Europe.

Teyssen, at the helm since May, said he plans to increase the company's reach to two new markets, although he has not yet decided which ones.

"It might be Brazil, maybe China," Generali's Wertz said, while a person familiar with E.ON's strategy told Reuters the company is considering expanding into south-east Asia.

That strategy has already helped competitors such as GDF Suez (GSZ.PA) and Enel (ENEI.MI), which recorded booming earnings from businesses in Latin America. [ID:nLDE6A21QH]

As E.ON's record has been mixed when it comes to takeovers, with billions of euros of writedowns on acquisitions in Spain, Italy, France, the United States and Britain, it is now concentrating on building fossil-fuel or renewable energy power plants.

The "focus (is) on organic developments with (a) highly disciplined investment approach" with the target to generate a quarter of its earnings outside Europe, E.ON said on Wednesday.

That strategy "isn't going to prove easy," Kepler Equity analyst Ingo Becker said. "The execution risk in both disposals and acquisitions is high." The company right now earns less than 10 percent of its profits outside Europe, Becker said. ($1=.7256 Euro) (Reporting by Tom Kaeckenhoff in Duesseldorf and Golnar Motevalli in London; Editing by Jon Loades-Carter and Hans Peters)

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