RWE Scraps 2016 Dividend After Another Multi-Billion Writedown

  • Sees 2017 dividend of 50 cents for common and preferred shares
  • Power prices have slumped more than 40 percent since 2012

There’s more pain ahead for most RWE AG shareholders after Germany’s biggest power producer said it wouldn’t pay a dividend for a second consecutive year after writing off billions because of sliding electricity prices.

The Essen, Germany-based utility booked impairments of 4.3 billion euros ($4.5 billion) attributed to its power plants in Germany, U.K., the Netherlands and Turkey, RWE said Wednesday in a statement. While the company booked a net loss for 2016, it aims to pay a dividend to all shareholders for this year.

The root of the problem for RWE and the rest of Germany’s biggest utilities lies in the nation’s unprecedented shift to renewable energy that created a glut and squeezed earnings from traditional electricity sources from coal to lignite and nuclear. More than 80 percent of the company’s latest writedowns are tied to the value of its German power plants. The nation’s biggest power producers have written down more than 30 billion euros on the value of their assets in the past three years.

“The impairments were expected even if not to that extent, but the dividend freeze have caught many investors by surprise,” said Elchin Mammadov, a utilities analyst at Bloomberg Intelligence in London. “On the other hand, the dividend floor for 2017 onward should provide investors with some clarity going forward.”

RWE shares rose as much as 1.2 percent to 13.66 euros, its highest intraday price since Nov. 8, and traded at 13.525 euros at 11:04 a.m. in Frankfurt. The stock is up 14 percent this year.

The company is scrapping its dividend for common shares, while it plans to keep the payout on the preferred shares flat at 13 cents a share for 2016 and sees a 2017 dividend of 50 cents per common and preferred share, it said.

The lack of a 2016 dividend is “a clear negative, but investors will be more concerned with the dividend for 2017 and beyond,” said RBC Europe Ltd. analyst John Musk in a note to clients. “While this is actually slightly ahead of overall consensus, we believe more recent estimates were above this and the market had been getting increasingly optimistic on shareholder returns.”

RWE’s German plants were responsible for about 3.7 billion euros of the total writedowns announced on Wednesday. That will contribute to a net loss of 5.7 billion for 2016 and an adjusted net income of about 800 million euros.

RWE booked impairment charges of 4.5 billion euros for the three years through 2015 relating to its power generation business, Lothar Lambertz, a company spokesman, said Wednesday by phone.

The utility also said it will pay 6.8 billion euros as part of its responsibility for nuclear waste disposal to the nuclear energy fund by July 1, 2017.

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