UPDATE 2-PostNL to drop cash div as TNT, pension costs bite

* Dividends to be paid in shares, rather than cash

* Q3 underlying EBIT 70 mln eur vs 57.1 mln eur in Reuters poll

* Sees 2011 underlying cash EBIT above 170 mln euros

* Further 337 mln euro impairment on TNT Express stake

* Shares fall 3.5 pct (Adds share price, analyst comment)

AMSTERDAM, Nov 7 (Reuters) - Former Dutch postal monopoly PostNL said it would pay dividends in shares from 2012 and would struggle to pay out in cash for a few years because of shortfalls at its pension funds and the falling value of its stake in delivery firm TNT Express.

The group, which also reported higher-than-expected profits and lifted its 2011 outlook on Monday, is under intense pressure to safeguard its profit and cut costs in the face of fierce price competition from rivals and a steady fall in mail volumes as more people use electronic communications such as email.

PostNL shares fell 3.49 percent at 1031 GMT, while the bluechip Amsterdam index was down 1.57 percent.

"People prefer to get cash, I don't think this is really appealing to investors," said Dieter Furniere, analyst at KBC Securities, adding that investors tend to buy utilities and postal companies for their dividends.

PostNL said the global financial market turmoil has forced it to make a further 337 million euro writedown on the value of its stake in global delivery outfit TNT Express , from which it broke up in May, putting the book value at 846 million euro.

"Since our last results, the financial markets have been extremely turbulent, leading to another impairment on the Express stake," and hitting the firm's pension funds, said Harry Koorstra, chief executive, in a statement.

The main pension fund may have to make substantial recovery payments between 2012 and 2014, Koorstra said, while regular pension premiums would probably increase from next year.

"All this will impact our capability of paying cash dividend the next few years," he said.

PostNL said it was committed to the current dividend policy of 75 percent of underlying net cash income with a minimum of 150 million euros per year.

But it said the dividends would be distributed in shares, until "consolidated equity is positive, and we have certainty of a BBB+/Baa1 rating".

"Cancelling the dividend (albeit by keeping up appearances with a stock-only dividend) was unavoidable," said SNS Securities analyst Gert Steens in a research note.

"The dividend addiction is being treated cold turkey."

PostNL on Monday also posted a smaller-than-expected fall in third-quarter operating income and lifted its outlook for the full year, thanks to improvements in its parcel and international businesses.

The company now expects underlying cash operating income to be above 170 million euros in 2011, compared with a previous outlook for the top half of a range of 130-170 million euros.

It reported third-quarter underlying earnings before interest and tax (EBIT) of 70 million euros, down 15.7 percent from a year ago, though domestic mail volumes continued to decline, while revenue fell 2.5 percent to 991 million euros.

Analysts in a Reuters poll were expecting underlying EBIT of 57.1 million euros on revenue of 1.00 billion. (Reporting By Sara Webb; Editing by David Holmes and Hans-Juergen Peters)