Munich/Frankfurt: Siemens, Europe’s biggest engineering company, signalled its confidence with a proposed sharp rise in dividends and a promise of profit growth driven by emerging markets.

Siemens, whose products range from fast trains and steam turbines to hearing aids and light bulbs, plans to increase its dividend by 69% to 2.70 euros ($3.71) per share.

Analysts said the move would raise Siemens’ dividend yield to 3.3%, as investors hunt for higher-yielding assets in a low interest rate environment. The sector average is 3.1% average, according to Thomson Reuters Starmine data, above Siemens’s current yield of 2.2%.

The company is also seeking to be more shareholder friendly and transparent after a crippling bribery scandal in 2007.

The dividend increase, for the financial year to September 2010, would be the first since 2007 and well above market expectations. Dividends have been flat at €1.60 per share for the last three years.

Siemens, which has hoarded €14 billion of cash during the recession, also published its first dividend policy on Thursday, saying the future dividend payout ratio will be 30-50% of net income. In the past six years, the payout ratio has averaged 41%.

“The dividend signals confidence in the future. It also means the company will now link dividend payment with profit, which means it can also be cut in the future," said Merck Finck analyst Theo Kitz.

Siemens this year broke an almost two-year streak of declining sales as emerging market demand and a weak euro helped it swing back to growth while it kept a right rein on costs.

The company completed its four-year programme to catch up with the profitability of rivals such as General Electric, Philips and ABB.

“Siemens has now reached world class margins. Its core businesses are doing well. There are only two problem units and they are non-core," said Kitz.

Siemens shares were up 3.3% at €85.94 at 1041 GMT, the biggest risers on Germany’s blue-chip DAX index.

Signals confidence

“With our new dividend policy, we’re providing long-term investors with an additional incentive to invest in Siemens," Chief Executive Peter Loescher said on Thursday as the conglomerate released fourth-quarter earnings.

Siemens’ move comes weeks after Philips, a rival in healthcare and lighting businesses, disclosed its 2015 targets, saying it wants its sales growth to be 2%age points higher than global growth.

Siemens expects profit from continuing operations in the current financial year to September 2011 to grow by 25-35%, with new orders improving significantly and organic sales returning to moderate growth.

The company posted a lower-than-expected decline in operating profit at its three core businesses to €1.1 billion its fourth quarter to September. The fall was mainly due to a €1.2 billion writedown in its diagnostics business.

Siemens said it expects emerging markets to expand considerably faster in the years ahead than their industrialised counterparts and to contribute a growing proportion of sales.

Emerging markets account for 30% of revenue now, compared with 19% five years ago.

“When you look into the fourth quarter, we have seen for the first time a growth across our product range, driven particularly by the strong growth we have seen in emerging economies," Loescher told Reuters Insider TV.

Loescher also said Siemens will grow its industrial businesses organically and through bolt-on acquisitions, while in the United States, it will boost its healthcare and energy portfolio.