UPDATE 1-French utility Engie surprises with 2018 dividend increase

* Engie swings into profit after two years of losses

* Utility says it is now less risky, more profitable

* Revenue and net profit at lowest level in a decade (Adds earnings detail, quotes)

PARIS, March 8 (Reuters) - French gas and power group Engie surprised the market with a higher-than-expected dividend as it said a three-year transformation plan was completed earlier than expected, and the utility also swung back into profit after two years of losses.

Engie proposed a 0.75 euros per share dividend on 2018 earnings, up from a lower 0.70 euros on 2017 earnings and beating forecasts for an unchanged 2018 dividend. The 2018 dividend, while up 7.1 percent, is still well below the one euro per share paid on its 2016 earnings.

Utilities' dividends are closely watched by investors, who typically buy these stocks because of their relatively high and steady dividend payouts and high cash flows.

"We have completed our three-year transformation plan faster than expected, therefore we will boost our dividend," Engie chief executive Isabelle Kocher said on an earnings call.

Engie's 2017 revenue came in at 65 billion euros ($80.6 billion), up 0.3 percent on a reported basis and up 1.7 percent on an organic basis, although revenue nevertheless stood at its the lowest level in a decade, below the 67.9 billion in 2008.

Engie's revenue had risen to as high as 97 billion euros in 2012, but has shrunk in two waves.

The first came in a wave of asset sales to reduce its debt, and then in the past few years Engie has had a strategic shift away from fossil-fuel based power generation assets and into renewables, grids and energy services.

Kocher said that the shift had turned Engie into a less risky, cleaner and more profitable company, with 89 percent of core earnings contracted or regulated, rather than exposed to commodity prices, and 90 percent from low-carbon activities.

She said Engie is now also more profitable as return on capital employed now reaches 7.2 percent, up 70 basis points compared to 2015.

The company swung into a net profit of 1.4 billion euros, reversing a 400 million euro loss in 2016 and a 4.6 billion loss in 2015. Its profit was also the lowest in a decade - between 2008 and 2012 Engie had four years with net earnings of more than four billion euros.

Its core 2017 earnings of 9.3 billion euros were down 1.8 percent on a reported basis but up 5.3 percent on an organic basis and in line with consensus forecast for 9.37 billion.

For 2018, Engie is targeting net recurring income between 2.45-2.65 billion euros, based on core earnings before interest, tax, depreciation and amortization (EBITDA) of 9.3-9.7 billion.

($1 = 0.8066 euros) (Reporting by Geert De Clercq; Editing by Sudip Kar-Gupta)