(Reuters) - British water utility Severn Trent Plc (LON:SVT) upgraded its dividend policy as it posted a 4.3 percent rise in full-year profit, helped by newer price regulations and higher savings.
Shares of the company, which supplies water across the UK's Midlands, rose as much as 3 percent to its highest since October. The stock was the top gainer on the FTSE bluechip index.
Severn Trent said underlying pretax profit rose to 525.1 million pounds for the year ended March 31, from 503.4 million pounds a year earlier.
The company also said it would raise its dividend by at least as much as the rate of growth in retail price index (RPI) plus 4 percent, each year, starting 2017/2018.
This takes the dividend to 86.55 pence for the year ending March 2018, from 81.50 pence in the year ended March 2017.
"Severn Trent has stated in the past that it would seek to share benefits of outperformance with shareholders (as well as customers), and this is now coming through with a more generous dividend policy," Morgan Stanley (NYSE:MS) analyst Timothy Ho said.
Full-year net customer outcome delivery incentive rewards (ODI) was 47.6 million pounds, the company said, with analysts expecting the strong ODI reward level to support its dividend policy.
Water companies are rewarded when they meet or exceed target, and are penalised if they fail to meet targets. These targets include timely project completions and better customer services.
Severn Trent, which had been rewarded 18 million pounds for outperforming targets including flooding and pollution, said in May last year that it planned to invest 120 million pounds for the benefit of customers.
The company said it now expected to save a further 100 million pounds, raising the total savings forecast to 770 million pounds, exceeding the total expenditure target imposed by the British water utilities regulator.
Turnover for the year rose 3.7 percent to 1.82 billion pounds.