* Proposes annual div of 2.20 euros above 2.14 euro poll avg
* Q4 EBIT ex one-offs 1.765 bln euros, below poll average
* Aims to significantly increase sales, oper profit in 2011
* Says had a very strong start to 2011
* Shares flat but outperform chemicals sector
(Adds buy-side analyst comment)
By Ludwig Burger
LUDWIGSHAFEN, Germany, Feb 24 (Reuters) - Germany's BASF returned to form with an improved dividend payout for 2010, although fourth quarter earnings at the world's biggest chemicals company by sales fell short of forecasts.
Long a paragon of steady payouts to investors, BASF cut its 2009 dividend for the first time in 16 years after the global economic crisis forced it to leave many plants idle.
It has since been helped by a buoyant auto sector, one of its key customer industries, and a fledgling recovery in demand from builders for its insulation foams. This has allowed it to pass on higher raw material costs to customers.
Chief Executive Juergen Hambrecht, who is to hand over to finance chief Kurt Bock in May, said on Thursday that sales and operating earnings in 2011 were set to clearly exceed last year's levels, and gains should also continue next year.
Its current pricing power would allow it to cope with even higher raw material costs, Hambrecht told Reuters Insider TV.
PAYING DIVIDENDS
The maker of coatings and catalytic converters proposed an annual dividend of 2.20 euros per share, up from 1.70 euros last year and ahead of an average analyst estimate of 2.14 euros.
The dividend would offer investors a yield of 3.7 percent based on Wednesday's close, putting BASF in the top six among its 73 western European chemicals peers, Thomson Reuters StarMine data shows.
"Hambrecht wanted to give a good sign before leaving the company, without putting the bar too high for his successor," said Gregoire Biollaz, an analyst at Credit Suisse Private Banking, which had about $1 trillion in managed assets in September.
"There should be a strong dividend next year, too, given that BASF expects to earn a high premium on its cost of capital in 2011," he added.
The shares were flat at 58.8 euros at 1033 GMT, while the benchmark STOXX Europe 600 Chemicals slipped 0.2 percent.
REAPING M&A SYNERGIES
After incurring roughly 1 billion euros ($1.38 billion) in integration costs for Ciba, the plastics and paper chemicals maker it acquired in 2009, BASF is now reaping the full benefits from cost cuts that followed the tie-up.
Fourth-quarter sales came in at 16.42 billion euros, above the 15.69 billion expected by analysts, as higher raw materials costs were largely passed on to customers. In the three months through December, earnings before interest and tax (EBIT) excluding one-offs rose to 1.77 billion euros but fell short of the 1.94 billion expected by analysts in a Reuters poll.
BASF cited more than 200 million euros set aside for a staff incentive programme and one-off costs for accelerated plant maintenance as reasons for falling short of expectations.
Results posted by global peers provided evidence of a strong business environment for the industry. Merck KGaA, the world's biggest maker of liquid crystals for flat screens, on Monday surprised the market with a bullish profit outlook.
Dow Chemical and DuPont, the largest U.S. chemical makers, came out earlier this year with better-than-expected quarterly earnings.
(Additional reporting by Michelle Martin and Frank Siebelt; editing by David Hulmes and Alexander Smith) ($1=.7270 Euro)