U.K. water company United Utilities PLC's (UU.LN) shares rose 4% Thursday after the company cut its 2010-2011 financial year dividend by less than some analysts had feared due to tough price controls from U.K. water regulator Ofwat.

The total dividend next year will be 30 pence a share, down 12.5% from the current financial year's payment of 34.3p a share, the company said.

United Utilities is the second U.K. water company this week to cut its dividend because of Ofwat's tougher than expected price controls, although the companies have not followed through with threats to challenge the regulator's stance with the Competition Commission. Severn Trent PLC (SVT.LN) Tuesday announced a 10% dividend cut.

Analysts had been expecting United Utilities to make a 20-25% cut in the dividend, said Evolution Securities analyst Lakis Athanasiou.

United Utilities also reassured its investors that the cut will ensure it is able to finance itself effectively from 2010 to 2015 and as a result it is "highly likely" to retain its A3 credit rating from Moody's. Standard and Poor's is likely to assign a lower credit rating due to differing methodology, United Utilities said in a statement.

Athanasiou said the likely Standard and Poor's cut to BBB+ will have a negligible effect on the company's financing. "Our view is that S&P's methodology is not appropriate for Regulatory Asset Value companies, and we also question the correctness of some of the data (particularly debt) used by S&P in its ratings assessments," he said.

"With the efficiency plans we are already implementing and the low cost of the group's debt portfolio, we believe that, on balance, it is not in the best interests of our shareholders and customers to seek a referral to the Competition Commission," said United Utilities' Chief Executive Philip Green.

From the 2011-2012 financial year onward, United Utilities said it will continue to grow dividends at 2 percentage points above inflation measure the Retail Price Index, in accordance with its existing policy.

At 0852 GMT United Utilities shares were up 4.1%, or 21 pence, at 529p.

 
   -By James Herron, Dow Jones Newswires; +44 (0)20 7842 9317; james.herron@dowjones.com
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