SANTANDER, Spain (Reuters) - Spain's Banco Santander told shareholders on Friday they would receive increased dividends this year, but executives at the annual general meeting were heckled by former investors in a lender it took over last year.

Chairwoman Ana Botin said the bank would pay a dividend of 0.23 euros ($0.28) per share against 2018 earnings, a 4.5 percent rise from 2017.

It will move to full cash payments in 2019. The bank has been paying three dividends in cash and one in shares or cash, known as a scrip dividend. In 2019, dividends will be paid twice a year.

The dividend increase was not enough to pacify former shareholders in Banco Popular which Santander bought last June 1 euro after EU authorities stepped in to avert a collapse. The purchase wiped out the value of Popular's shares and subordinated debt.

Several former Popular investors bought small amounts of Santander stock to get access to the AGM.

"The bank talks about ethics but the Popular deal was not an acquisition, it was total appropriation," retail shareholder Manuel Javier Aries Torres told Botin from the audience.

Though Santander offered some Popular investors new bonds worth 980 million euros as compensation, several are suing.

The bonds pay just 1 percent a year for the first seven years, after which Santander can redeem them. That low coupon means the bonds were probably worth less than three-quarters of their face value, according to consultancy firm AFI.

"We consider that this abusive (compensation) offer will only translate into more lawsuits against the bank,", said Alex Rodriguez Toscano, representing consumer group Adicae.

Some investors consider the sale was based on a flawed valuation. A Deloitte report showed the bank could have been worth up to 1.3 billion euros.

Botin said she regretted the loss that Popular's shareholders and bondholders had suffered but said European institutions were responsible for wiping out their investments.

Botin, who took over the chairmanship from her father in 2014, said the Popular acquisition was an "excellent opportunity" to strengthen the bank's franchise in small and medium-sized companies in Spain and become the largest private bank in Portugal.

In the United States, where Santander passed its stress tests for the first time in 2017 after three failures, Chief Executive Officer Jose Antonio Alvarez said its unit would achieve "significant" growth in profits over the next few years.

(Reporting By Jesús Aguado; Editing by Angus Berwick and Robin Pomeroy)

By Jesús Aguado