Drax to review dividend policy

UK power giant Drax said it was reviewing its dividend policy after reporting another decline in annual profits on the back of weak energy prices, according to Reuters.

As its core power production business struggled with low market prices, the company more than trebled revenue from providing back-up generation. It saw scope to grow this business significantly as rising renewable energy production requires stand-by plants to fill gaps in output, the news agency reported.

Drax said it would pay a full-year dividend of 2.5 pence per share, down from 5.7 pence in 2015, but in line with a policy of paying out half of underlying earnings.

However, it plans talks with shareholders in coming months over a review of that payout policy.

"To us this points to a lower dividend policy long-term than current consensus expectations," said analysts at Jefferies who rate the stock as 'underperform'.

Drax reported a 17% fall in earnings before interest, tax, depreciation and amortisation (EBITDA) to £ 140 million (€163m), just below analysts' forecast of £143 million.

The company, which is converting Europe's once most polluting coal plant to run on biomass, made £47 million in revenue last year from contracts with National Grid which reward it for providing back-up power. This compares with 14 million made from these services in 2015, according to Reuters.

The contracts mean that Drax has been able to keep its remaining coal-fired power units running. It said a year ago it may have to mothball the coal units that have struggled to compete with cheaper green energy output.

"We do expect our coal plants to continue to generate at very low levels compared to historic rates but we think they will be needed to keep the system stable and secure," Drax CEO Dorothy Thompson told Reuters.