Eni becomes first oil major to cut dividend as seeks to fund growth

* Suspends share buyback, stock ends down 4.6 pct

* Cuts investments 17 pct in 2015-2018 to 48 billion euros

* Targets annual output growth of 3.5 percent (Adds fund manager, details, shares)

By Stephen Jewkes and Ron Bousso

MILAN/LONDON, March 13 (Reuters) - Italy's Eni (NYSE: E - news) cut its dividend and suspended a share buyback programme on Friday, becoming the first oil major to reduce payouts after a steep oil price decline in a bid to save funds to spur future production growth.

In the first major business plan of Chief Executive Claudio Descalzi, Italy's biggest listed company said it would pay a 2015 dividend of 0.8 euros per share, compared with the 1.12 euros per share it paid on 2014 results.

The state-controlled oil major also said it would cut investments by 17 percent in the 2015-2018 period to around 48 billion euros ($50 billion) and sell assets worth 8 billion euros, 70 percent of which will be put up for sale before 2016.

Eni shares fell more than 6 percent before recouping some of those losses and ending down 4.6 percent.

"Everyone was convinced they'd do all they could to keep the dividend steady," said Roberto Lotici, fund manager at Ifigest. "The capex cuts and intensity of the assets sales are also a cause for concern," he added.

The slump in oil prices since June is testing the ability of listed oil companies to support cash flows and has sparked a rush to cut costs across the sector.

Many big oil firms have announced cuts of 10 to 15 percent to their spending budgets and some have suspended share buybacks.

But most consider high dividends as sacrosanct and investors have said the payouts are the main factor supporting the stocks of major oil firms.

Oil prices collapsed to as low as $46 per barrel in January from peaks last year of $115. Prices have recovered somewhat since January and Brent crude was trading at $56 per barrel on Friday.

Companies like BP and Shell (LSE: RDSB.L - news) said they would do their utmost to continue paying high dividends and would rather cut operating and capital expenditure (capex), sell assets and increase borrowing than reduce payouts.

TARGETS OUTPUT GROWTH

When asked in January if Eni would cut dividends, Descalzi told Reuters in January he was confident the company would be able to navigate the low oil price environment.

Until now, Eni has had a dividend yield of 6.8 percent versus a peer mean of 5.4 pct, raising concern it had become too stretched in a low oil-price world as the group restructures and sells businesses.

The company, which under Descalzi is increasingly shifting its focus to upstream exploration and production activity, said it was targeting annual output growth of 3.5 percent in 2015-2018, up from the 3 percent growth in its previous 2014-2017 plan.

Growth will be boosted by the start-up of 16 major projects, which will have an average breakeven level of $45 per barrel, it said.

Eni, the biggest foreign oil producer in Africa in terms of production, is seeking to expand its geographical footprint.

"We're transforming the company. I am happy but we need to make more effort to be in other countries. We're working on that," Descalzi said.

The company is going through a high investment cycle, unlike some of its peers, meaning it needs an oil price of $120 per barrel to break even - or generate cash after capex, operating expenditure and dividend payments.

By comparison, its rivals ExxonMobil and Shell need a price of around $60 to break even.

($1 = 0.9498 euros)

(Additional reporting by Agnieszka Flak, Giancarlo Navach and Dmitry Zhdannikov; Editing by Susan Thomas and Pravin Char)