ESSEN, Germany (Reuters) -E.ON, Europe's top operator of energy networks, raised its five-year investment target by 27% to 42 billion euros ($46 billion) and gave a profit outlook that surpassed even the highest forecasts, driven by the continent's need for modern grids.

E.ON said Europe, where it supplies around 47 million customers, required major grid expansion to ensure thousands of wind turbines and millions of solar panels can be integrated in a system that is shifting away from fossil fuels.

E.ON's shares rose 5.4% to their highest level in nearly six weeks. Traders and analysts pointed to a better-than-expected outlook for adjusted core profit (EBITDA) in 2024 and 2028, as well as the group's 4.32% dividend yield, the highest among Germany's listed energy companies.

"E.ON will be a major beneficiary of the current strong operating environment. In our view today's medium-term outlook will be a major re-rating catalyst," Barclays analysts said.

The new spending plan for the 2024-2028 period compares with 33-billion-euros for the 2023-2027 period, the company said, adding this would lead adjusted EBITDA to rise to 11 billion euros by 2028.

With an implied annual capital expenditure of 8.4 billion euros, E.ON's plan is the most ambitious among German energy companies but ranks behind European heavyweights Iberdrola and Enel, which aim to spend an average of 15.7 billion and 11.9 billion euros a year, respectively.

A surge in decentralised renewable energy assets has caused European energy companies to raise spending on grid expansion, eager to cash in on the fixed returns they offer.

"Across Europe, there are massive expansion plans for renewable facilities that will need to be connected to networks," E.ON Chief Financial Officer Marc Spieker said.

"That's why we're investing even more and even faster in our power grid infrastructure."

Investments could even surpass the 42-billion-euro target, Chief Executive Leonhard Birnbaum told Reuters, saying this required a favourable regulatory environment that provides sufficient returns on network spending.

In presentation slides, E.ON said it has additional balance sheet capacity of 5-10 billion euros.

For 2024, the company is expecting adjusted EBITDA to decline to 8.8 billion to 9.0 billion euros, from 9.4 billion last year, which was marked by a number of one-offs at the group's retail energy division.

This is higher than the 8.6 billion euro average estimate in a poll provided by the company.

E.ON said it would propose increasing its dividend to 0.53 euros per share for 2023, up from 0.51 euros each for the previous year. This is in line with the 0.53 euro LSEG estimate.

($1 = 0.9140 euros)