UPDATE 2-Germany's K+S cuts dividend on potash market turmoil
* Cuts dividend to 0.25 eur/shr amid uncertain potash market
* 2013 adjusted EBIT, sales above forecast
* Says abandons dividend payout target ratio for now
* Shares drop 1.8 pct (Adds background on potash market, Canada project, shares)
FRANKFURT, March 12 (Reuters) - German potash miner K+S slashed its 2013 dividend and suspended its long-term payout goal to preserve cash for a new mine it is building in Canada despite a slump in prices of the fertiliser ingredient.
The market for potash has been in turmoil since Russian producer Uralkali quit a powerful sales alliance with Belarus' Belaruskali in July last year, leading to higher output volumes and lower prices.
K+S has remained committed to a C$4.1 billion ($3.7 billion) expansion project in Canada, planning to bring the new mine called Legacy on stream in 2016, even though lower potash prices have upset its previous funding plans.
The group, which is also the world's largest salt supplier, said on Wednesday it would cut its 2013 dividend to 0.25 euros ($0.35) per share from 1.4 euros a year earlier. Analysts had on average expected a payout of 0.54 euros per share.
The dividend equates to just 11 percent of adjusted net profit for 2013, far below the company's long-term goal to pay out 40-50 percent of adjusted earnings, which it said it intended to return to as soon as possible.
"Against the background of the still uncertain potash markets and especially with regard to its investments in Canada we think this was a reasonable decision of K+S to cut the dividend," said DZ Bank analyst Heinz Mueller.
At 1400 GMT, K+S shares were down 1.9 percent at 24.585 euros, underperforming a 1.6 percent decline in Germany's blue-chip DAX index.
K+S, which used to be a division of German chemicals group BASF, said adjusted earnings before interest and tax dropped 18 percent to 656 million euros last year, beating the average estimate of 635 million in a Reuters poll of analysts.
Full-year sales of 3.95 billion euros were also above the average forecast of 3.86 billion.
There are signs of Uralkali and Belaruskali setting differences aside to rejoin forces but Uralkali in January cut prices by 24 percent in a new semi-annual supply deal with China, one of the world's largest importers.
Demand from India, another key potash consumer, looks set to be subdued by plans to cut potash subsidies by nearly a fifth there as the government tries to contain a ballooning fiscal deficit.
K+S sells potash mainly to European farmers but the ups and downs in prices follow the same patterns globally.
The company last month achieved a technical milestone at its Canadian Legacy mine by drilling a connection to the first cavern for extraction of potash brine solution.
It is aiming for the site to have annual output capacity of 2 million tonnes of potash by 2017, adding to the capacity of 7-7.5 million tonnes at its German mines, which face depletion in about four decades.
($1 = 0.7212 Euros)
($1 = 1.1086 Canadian Dollars) (Editing by Louise Heavens and Mark Potter)