* Proposes 2017 dividend of 0.40 eur/shr after 0.29 eur/shr
* Shares rise as much as 6 pct to highest since early Nov
* Full year figures due March 14 (adds detail, background)
VIENNA, Jan 16 (Reuters) - Austria’s largest energy group Verbund raised its 2017 core profit guidance on Tuesday thanks to an improvement in water supply and better results in its power grid unit.
The majority state-owned group also said it planned to raise the payout for its shareholders by more than a third to 0.40 euros per share, driving its shares to a two-month high.
Verbund, which generates more than 90 percent of electricity from renewable energy sources such as hydropower, biomass, wind, and solar power, had previously warned its 2017 core earnings would fall more than 20 percent.
Like many rivals, Verbund is struggling with a slump in power prices, and it also has to address challenges around increasing digitalisation and changing infrastructure.
Verbund said it now expected 2017 earnings before interest, tax, depreciation and amortisation (EBITDA) of 920 million euros ($1.13 billion), down 12 percent from 1.04 billion euros in the previous year.
Verbund has been popular with investors because of a generous dividend policy, but it faced criticism from them last year after it cut its payout ratio to 31 percent of earnings from 45 percent in 2015 to strengthen its financial position.
The proposed dividend for 2017 will be around 40 percent of adjusted group results, it said.
Verbund shares gained as much as 6 percent to 22 euros, their highest since Nov. 2, and were up 4 percent at 1340 GMT.
The group will release full year results on March 14.
$1 = 0.8175 euros Reporting by Kirsti Knolle; Editing by Louise Heavens and Mark Potter