RWE Falls on Concern Dividends May Drop by Half: Frankfurt Mover

RWE AG, Germany’s second-largest utility, posted the biggest decline on the country’s DAX index for a second day on speculation dividends may be cut by half.

RWE slid 2.9 percent to 20.74 euros, the lowest price in a decade, by the Frankfurt close. It fell 4.5 percent yesterday.

“I expect that the company will halve its dividend to 1 euro for 2014 and 2015,” said Ingo Becker, an analyst at Kepler Cheuvreux. “Another alternative would be to pay no dividend.”

Pressure is mounting on Essen-based RWE to reduce the payout after earnings fell in the past three years. The economic slowdown in Europe has eroded power demand, while the growth of renewable energy has cut profit margins for gas- and coal-fired plants. RWE, like larger German competitor EON SE, is cutting costs and selling assets, including its Dea oil and gas unit.

The sale of Dea, in Egypt, is “extremely difficult” in the current political environment, Becker said by phone from Frankfurt, referring to the deepening conflict in the North African nation. Becker today cut his price estimate on RWE to 18 euros from 24 euros and confirmed his reduce recommendation.

RWE yesterday reported first-half profit that missed analyst estimates. While the effect of lower prices can be tempered by selling electricity forward, such price advantages will gradually decrease in the next two to three years, according to Chief Financial Officer Bernhard Guenther. “The crisis will then hit us with full force,” Guenther said yesterday. The CFO said he had “no news” on the dividend.

Bloomberg analysts are forecasting RWE’s 2-euro dividend will be maintained on 2013 profit, to be paid the following year. A dividend payment of 1.52 euros is more probable, according to the level of payout implied by options trading.

Before it's here, it's on the Bloomberg Terminal.