UPDATE 2-Aluminium maker Hydro beats profit forecast, eyes dividend boost

* Fourth-quarter profit up more than 100%

* Plans to raise dividends to at least 50% of profit from 2021

* Expects aluminium oversupply to drop by two thirds this year

* Aluminium prices have risen 40% since April

* Shares up 1.9% (Adds detail, background)

OSLO, Feb 12 (Reuters) - Norwegian aluminium maker Norsk Hydro posted stronger than expected fourth-quarter operating profit on Friday and said it plans to pay out a larger share of its profit as dividends from 2021 onwards.

Aluminium prices have risen more than 40% from the four-year lows hit last April and is trading at a little more than $2,000 a tonne, buoyed by hopes of a global recovery from the economic impact of the COVID-19 pandemic.

Global oversupply of aluminium, a lightweight metal used in products from cars to food packaging, is likely to shrink from 3 million tonnes last year to a more manageable 1 million tonnes this year, Hydro said.

Underlying earnings before interest and tax (EBIT) rose to 1.45 billion Norwegian crowns ($170.7 million) in October-December, from 560 million crowns a year earlier, beating the 1.34 billion crowns expected in a poll of analysts.

Shares rose 1.9% in opening trade on Friday, outperforming a 0.1% rise for the Oslo benchmark index.

Hydro’s volume growth outpaced the wider market in both its Rolling and Extrusions divisions in the fourth quarter, driven by recovery in areas including the automotive and construction sectors, said Chief Financial Officer Paal Kildemo.

Hydro cautioned, however, that the demand outlook remains uncertain as the pandemic continues.

Another uncertainty on the horizon is a group-action lawsuit in the Netherlands over alleged toxic waste pollution in northern Brazil. The lawsuit has been brought by a group of communities in the lower Amazon region in the state of Para, representing 11,000 families.

The company proposed a dividend of 1.25 crowns per share for 2020, unchanged from 2019, and said its policy from 2021 will be to pay a minimum of 50% of underlying net profit, up from 40%.

Cost savings in 2020 amounted to 4.2 billion crowns, it said, ahead of a targeted 4.1 billion and about halfway to its longer-term target 8.5 billion crowns between 2019 and 2025.

$1 = 8.4944 Norwegian crowns Editing by Terje Solsvik and David Goodman