GERMANY’S E.ON, 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 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 yesterday that the company’s dividend for 2011 would drop no more than 13 per cent to €1.30 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 2.2 per cent to close at €22.27, outperforming the STOXX Europe 600 utilities index. “A stable dividend is something fantastic these days,” said Herbert Wertz, who helps manage €260bn for insurer Generali.
By announcing €15bn (£12.8bn) 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.
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.
City A.M. Reporter