UPDATE 1-Tobacco group Swedish Match to raise ZYN capacity, Q4 profit falls

* Tobacco-free nicotine pouches, ZYN, are new fast-growing segment

* Rolling out non-tobacco nicotine pouch in USA since April 2019

* Raises dividend by 19%

* Chewing tobacco impairment charge dents Q4 profit (Adds detail, background)

STOCKHOLM, Feb 12 (Reuters) - Tobacco group Swedish Match said on Wednesday it would increase production capacity for its new and fast-growing tobacco free nicotine pouch product as it reported an unexpected drop in profit for the fourth quarter.

Operating profit shrank to 1.10 billion Swedish crowns, ($114.1 million) from 1.20 billion a year earlier. The mean forecast in a Refinitiv poll of five analysts had been for a rise to 1.44 billion crowns.

An impairment charge of 367 million crowns related to Swedish Match’s small European chewing tobacco business weighed on earnings, taking the shine off rising underlying profitability and sales on earnings in the quarter.

The group, whose biggest businesses are its moist snuff “snus” product in Scandinavia and cigars in the United States, last year started rolling out its non-tobacco pouch product ZYN across the United States.

Sales of the product, which like snus is placed under the upper lip, have soared and the company is building a factory in the United States for it. It said on Thursday it had decided to expand the plant beyond earlier plans to support growth.

“Given the market success of ZYN, we have recently decided to once again expand capacity,” it said.

“The fourth phase, which is planned to be completed in 2022, will involve building expansion as well as processing and packaging lines that will increase annualized installed capacity to more than 200 million cans.”

The rival to British American Tobacco and Altria , whose shares were up 16% this year at Tuesday’s close, proposed a dividend of 12.50 crowns per share for 2018, a 19% increase from the year before.

$1 = 9.6391 Swedish crowns Reporting by Anna Ringstrom; editing by Niklas Pollard