* Scraps dividend for ordinary shares for second straight year
* 2016 net loss 5.7 billion euros, biggest ever
* Eyes dividend of 0.50 euros/share for 2017 (Recasts throughout, adds fresh quotes, shareholders)
By Christoph Steitz
FRANKFURT, Feb 22 (Reuters) - German utility RWE said it planned to pay a dividend for 2017 after a two-year break, aiming to appease shareholders after suffering an annual net loss of 5.7 billion euros ($6 billion), the biggest in its 119-year history.
RWE is targeting a payout of 0.50 euros per ordinary share for 2017, it said, adding it hoped to at least maintain that level in subsequent years to "give shareholders a prospect for the future dividend trend".
The group said this was possible on the back of cost cuts and a reorganisation which included splitting off its healthy assets into a new entity, Innogy, and listing it on the stock exchange last year in Germany's biggest IPO since 2000.
"A clear dividend policy is a material improvement from a situation of having no policy," Jefferies analyst Ahmed Farman said.
Shares in RWE, which had gained nearly 14 percent year-to-date, were down 0.5 percent at 1420 GMT.
Leading shareholders were disappointed by the group's decision to suspend payouts for the second consecutive year, which RWE said had been made necessary after 4.3 billion euros of writedowns, mostly on its ailing power plants.
RWE also pointed to an increase in provisions for the storage of radioactive waste, money which it will transfer to a government-controlled fund on July 1, as another burden.
"We are frustrated that we have to make another sacrifice after having already made a contribution to the group's recovery last year," said Ernst Gerlach, head of VkA, which represents local municipalities in northwest Germany that together hold about 23 percent of RWE.
Analysts had expected a dividend of 0.26 euros per ordinary share. For preferred shares, which account for only about 6 percent of RWE's stock, the group will pay a dividend of 0.13 euros per share for 2016.
Citing efficiency programmes, RWE said it reached the upper end of its core profit forecast ranges in 2016, with adjusted operating profit (EBIT) coming in at 3.1 billion euros, above Thomson Reuters consensus.
Falling wholesale power prices and a surge in renewable capacity have squeezed the margins of fossil-fuel based power plants that used to generate stable profits but have become a burden in recent years.
European utilities have been scrambling to turn around their businesses that for decades relied on making healthy profits from big conventional plants, forcing some of them to break up to stay alive, including RWE.
"RWE stood with its back against the wall," said Thomas Deser, senior portfolio manager at Union Investment, which holds more than 1 percent of RWE stock. "The listing (of Innogy) was the only chance to get access to fresh capital." ($1 = 0.9509 euros) (Additional reporting by Vera Eckert; Editing by Keith Weir)