May 21 (Reuters) - Shares in British water firm Pennon fell 6% on Tuesday after the company missed annual operating profit forecasts and announced compensation for households in southern England affected by a parasite outbreak this month.

The company said it would pay 3.5 million pounds ($4.45 million) in compensation, or about 215 pounds per household, after Pennon-owned South West Water told customers in Brixham, Devon last week to boil water before drinking it due to parasite contamination.

"We are 100% focused on returning a safe water supply to the people and businesses in and around Brixham," CEO Susan Davy said on Tuesday, adding that normal service had returned for 85% of customers there.

Pennon reported a 9% rise in underlying operating profit to 166.3 million pounds for the year ended March 31, 5% below analysts' consensus estimates, according to LSEG data.

The company also cut its dividend by 2.4 million pounds after it was also fined 2.2 million pounds in April last year for dumping sewage into rivers and the sea in Devon and Cornwall.

Shares in the FTSE 250 firm were trading 6% lower at 673.50 pence in early deals, and have now fallen 10% since Pennon issued the warning about water contamination in Brixham last week.

Britain's water industry, privatised in 1989, has been criticised and penalised for releasing dirty water into rivers and for raising customers' bills amid a cost-of-living crisis.

Water firms have also been scrutinised by regulator Ofwat for paying bonuses to executives and dividends to shareholders as they continue to report subpar environmental standards.

Pennon, which provides water across the UK, announced a full-year dividend of 44.37 pence, reducing the total payout by 0.84 pence a share, and said the group had carefully considered regulator Ofwat's new dividend guidance for water businesses.

"With media, public, and regulatory scrutiny of the water sector running high, Pennon's dividend growth has taken a hit," Aarin Chiekrie, equity analyst at Hargreaves Lansdown wrote in a note.

Pennon, however, forecast its organic revenue would rise in the current fiscal year, as it bets on inflationary tariff increases and growth in its non-household retail businesses. ($1 = 0.7867 pounds) (Reporting by Radhika Anilkumar and Aby Jose Koilparambil in Bengaluru; Editing by Sherry Jacob-Phillips, Rashmi Aich, Eileen Soreng and Susan Fenton)