3i pledges dividend rise as it leaves FTSE 100

3i has promised a substantially higher dividend in a move aimed at re-establishing investor confidence in the private equity group following its relegation from the FTSE 100 this week.

The UK-based group said in a trading update that the board would make an announcement in mid-November on what proportion of returns should be paid as a dividend.

It said this review would result in a “progressive dividend based on the performance of the group and starting from a substantially higher level than the current dividend”.

The move came after shareholders earlier this year voiced their anger over a lacklustre share price performance, a comparatively low dividend yield, which is now around 1.9 per cent, and doubts about its investment strategy.

Analysts estimate that 3i could bring its payout level back to that seen before the financial crisis hit the group in 2009, which would imply a more than doubling of its dividend.

Michael Queen, chief executive, has already unveiled a strategy to deliver more predictable and higher earnings by diversifying into debt management and infrastructure.

Earlier this year, Mr Queen outlined a target return on equity of 15 per cent per year during any five-year period. In the past two years, it has reached a return on equity of 13 per cent.

Some investors had also been calling for a share buy-back. The company’s net debt sank from £522m at the end of March to £343m at the end of August.

3i said it had the authority to repurchase shares in the market but added that any such move would be weighed against other investment opportunities and would not depart from the conservative balance sheet strategy it had followed since its rights issue in 2009.

In its trading statement 3i said the group’s returns in the first half of its financial year, which started in April, would be affected by falling valuations of its portfolio in the wake of the recent stock market turmoil.

Mr Queen said: “The economic outlook looks increasingly challenging and falling stock markets mean that the value of our portfolio will inevitably be lower at the half-year despite an overall solid trading performance.”