The shares fell by 17 points to 461.5p, down 3 per cent, after it said it would only pay 20.35p per share. City analysts had expected at least 20.5p. Most had hoped for 21p or more.
Despite a fall in profits to pounds 216m from pounds 206m, the City was expecting a boost in dividend in line with other companies in the sector. Anglian Water boosted dividends by 13 per cent this week, while South West Water produced a 12 per cent dividend.
Kevin Bond, managing director, said the company was seeking to tighten its balance sheet. "We're very conscious of the fact that we're going to have a significant number of commitment in capital spend between 2000 and 2005," he said.
But the dividend was interpreted by some in the City as a political gesture towards Ian Byatt, director of Ofwat, the water regulator.
One analyst said: "They are trying to impress the regulator and there is no point in it. The regulator will do what he wants to do anyway. It is naive on their part to think that the regulator will be affected."
Yorkshire Water has struggled to find favour with Ofwat since 1995, when one of the rainiest counties in the country found itself short of water.
The company was forced to invest in infrastructure and was hit by a penal pricing regime. Unlike rival companies, it cannot raise prices up to inflation plus 2.5 per cent. Yorkshire can raise them only as high as the retail price index.
"It is definitely a political move. The trouble is, politicians don't understand dividends, they only understand prices and headline profits," said one City observer.Reuse content