Oil giant BP has announced a 14 per cent rise in its quarterly dividend as it published its 2011 final results.

'Returning operational momentum' and 'strong cash flow generation in 2011' has given the company increasing confidence in its plans to grow value for shareholders, according to chief executive Bob Dudley.

Fourth-quarter underlying replacement cost profit came in at $5 billion (£3.16 billion), beating Royal Dutch Shell's $4.8 billion (£3.0 billion) – the first time in a year. Shell said it was hit by lower refining margins, oil products and chemical sales volumes in the fourth quarter, along with a deterioration in refining markets, especially in North America.

BP's underlying replacement cost profit was $21.7 billion (£13.7 billion) for 2011, compared to $20.5 billion (£12.9 billion) for 2010. Operating cash flow in 2011 was $22.2 billion (£14.0 billion), in a $111 (£70) oil price environment, a 63 per cent increase on the total for 2010. At the end of 2011, BP's net debt stood at $29 billion (£18 billion), representing a gearing level of 20.5 per cent.

Oil and gas production rose by over 5 per cent quarter-on-quarter in the last three months of 2011, to 170,000 barrels of oil equivalent a day (boed). In 2011 as a whole it averaged 3.45 million boed, ahead of the 3.4 million boed target.

Looking ahead, the company expects to drill 12 exploration wells in 2012; double the 2011 total. It also expects to start up six major upstream projects in higher-margin areas, increasing capital investment to around $22 billion (£14 billion).

'We aim to build an ever-stronger portfolio, upstream and downstream, generating enough cash both to invest for the future and to reward those who invest in us,' commented Dudley.

With regards to the Gulf of Mexico, there are now five deepwater rigs working on BP-operated fields. By the end of 2012, BP expects an additional three rigs to be working in the region, subject to regulatory approval.

BP has committed $1 billion (£632 million) for the early restoration of natural resources following the Deepwater Horizon accident in 2010. In addition to payments worth $7.8 billion (£4.9 billion) to meet claims and government payments, a total of $15.1 billion (£9.5 billion) has been paid into the Gulf of Mexico Trust Fund. BP is hoping to complete payments into the fund in 2012.

The limitation and liability trial regarding the Deepwater Horizon tragedy begins on 27 February. Dudley stated that the company was 'prepared to settle if we can do so on fair and reasonable terms', but that if this was not possible, then it would prepare 'vigorously' for trial.

'2012 will be a year of increasing investment and milestones as we build on the foundations laid last year,' said Dudley. 'As we move through 2013 and 2014, we expect financial momentum will build as we complete payments into the Gulf of Mexico Trust Fund, restore high-value production and bring new projects on stream,' he added.

Charles Stanley analyst Tony Shepard stressed that it was 'good' to see a dividend increase and that it was a sign of confidence in the improving operational performance. However, with the company facing uncertainty over the Gulf of Mexico tragedy, he had a 'hold’ recommendation on the stock.

Malcolm Graham-Wood at VSA Capital was also less optimistic on the stock. 'Despite the apparently positive mood, I would have waited until after the settlement of the case before I increased the payout,' he said. 'As I have said before, BP was paying out too much in dividends before Macondo and it is being a deal more optimistic about life than more solid industry peers,' he cautioned.

Shares in BP are trading on a 2012 price to earnings ratio of between six and seven times, with a dividend yield of over 4 per cent.

This was written for our sister website, Interactive Investor