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UPDATE 2-Tim Hortons profit misses forecast; shares up after dividend hike

TORONTO, Feb 20 (Reuters) - Canadian coffee and doughnut chain Tim Hortons Inc reported weaker-than-expected results on Thursday, hurt by slowing growth, but its stock jumped as it hiked its dividend and made plans to buy back up to C$440 million ($399 million) in shares.

Shares of Tim Hortons, which faced shareholder pressure last year to return capital, were up 3.2 percent at C$59.77, after falling nearly 8 percent since it last reported quarterly earnings in November.

The Oakville, Ontario-based company, which says it sells eight out of 10 cups of coffee in Canada, has been expanding its food menu in pursuit of growth.

The move puts it head to head against the likes of Starbucks , which is introducing new pastries, and fast food chains like McDonald's Corp, which is pursuing "more of a coffee culture" with its expanded McCafe products.

Tim Hortons is set to unveil a new five-year strategic plan next week. In the meantime, it raised its quarterly dividend to 32 Canadian cents per share from 26 Canadian cents per share, higher than expected, according to BMO Capital Markets analyst, Peter Sklar.

The restaurant chain, which has a loyal following in Canada, also announced that it has paired up with CIBC, the country's fifth largest bank, to launch a loyalty rewards Visa credit card.

FOURTH QUARTER MISS AND 2014 OUTLOOK

Sklar said Tim Hortons' results fell short of expectations and attributed the miss to higher operating costs, but said sales at established stores were in line with his forecasts.

Fourth-quarter same-store sales increased 1.6 percent in Canada and 3.1 percent in the United States, higher than its full year sales growth of 1.1 percent in Canada and 1.8 percent in the United States. Both growth rates slowed from the same quarter a year ago, however.

Tim Hortons, which operates 4,485 restaurants as of the end of the fourth quarter, said it expected sales at established stores in Canada to increase 1-3 percent this year and those in the United States to rise 2-4 percent.

Net income per share attributable to Tim Hortons for the quarter ended Dec. 31 rose to 69 Canadian cents per share, from 65 cents per share a year earlier, bolstered by share buybacks that led to a decrease of 8.6 million shares outstanding from a year earlier.

Fourth-quarter revenue rose 11 percent to C$898.5 million.

On an average, analysts had expected a profit of 76 Canadian cents per share, according to Thomson Reuters I/B/E/S.

The company forecast a full year profit of C$3.17 to C$3.27 per share.

The planned share repurchase announced on Thursday fleshes out a previously announced program to buy back up to C$1.2 billion in shares through August.

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