Drax Cuts Dividend Payout

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LONDON -- The U.K.'s largest coal-fired power station, Drax (LSE: DRX.L  ) , has cut its interim dividend by 10% to 14.4 pence per share as profits fell. The company has a stated policy to distribute 50% of underlying earnings, which were down an expected 10%.

Drax, which is in the process of spending 700 million pounds to convert its dependence on coal to a reliance on biomass, said it now has the green light to turn its stated ambition of becoming a predominantly biomass-fueled generator into reality.

The company added, "The Government's decision to award an appropriate level of support for converting individual generating units to run fully on biomass, combined with the excellent technical progress we have made in proving the feasibility of unit conversion at Drax, means that we can now put our plans into action."

The company said it will do this by converting three of its six generating units to biomass: "We have both proven the technical solutions to deliver reliable and flexible generation at attractive rates of efficiency and output, and are making good progress with our biomass sourcing."

Shares in Drax, which have fallen some 18% from a high of 578 pence this year, are now valued at around 12 times prospective earnings. The forecast yield is a respectable 4.3%. However, it should be noted that underlying profit, which determine the level of dividend payout, is heavily geared on the cost of raw materials.

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David does not own shares in Drax. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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