Bagging Bumper Dividends After BP

This article has been adapted from our sister site across the pond, Fool UK.

As you're no doubt aware, 2010 has been an annus horribilus for giant oil producer BP (NYSE: BP).

With BP under sustained regulatory and political assault from the U.S. since the tragic accident at its Macondo deep-sea oil well on 20 April, its share price has almost halved. Since April 16, BP shares have crashed 47%. This has sliced close to £60 billion from its market cap and 200 points (4%) from the FTSE 100 index.

No BP dividends this year ...
BP has agreed to set up a $20 billion (£13.6 billion) escrow account to fund environmental and other claims arising from the Macondo oil spill. In order to pay for this fund, BP's directors have decided to suspend quarterly dividends, including the U.S. $0.14 which was due paid to be yesterday (June 21).

In effect, BP's owners -- 39% of which are based in the U.S. -- will receive no further dividends in 2010. Even worse, this will be a big blow to millions of non-BP investors, as the oil Goliath accounted for almost 15% of total dividends paid by FTSE 100 firms.

Likewise, before its fall from grace, BP was worth around 8% of the entire U.K. stock market. Thus, private investors, pension funds and insurance pots will all have taken a big knock from BP (alias 'Big Plunge').

... and a lower dividend from 2011
It's likely that BP will not resume paying dividends until the first quarter of next year, when it may declare and pay a dividend relating to the results of the final quarter of 2010.

That said, when BP does resume dividends, they are sure to be at a lower level than the $0.56 (38p) it paid over the past 12 months. With its share price at 337.5p as I write, BP has a whopping dividend yield of 11.3%. Given BP's woes, a yield this high is absolutely unsustainable.

Based on figures from Citigroup, via the dividend-swaps market (hat-tip to FT Alphaville), BP investors expect a dividend of 15p in 2011, rising to 20p in 2012. At 337.5p, this equates to a dividend yield of 4.4% next year and 5.9% in 2012. This is roughly in line with the dividends paid by other megacap, global oil firms.

Then again, although BP's dividends are set to more than halve next year, some investors will still hold onto the shares, given the near-6% yield expected in two years.

Replacing BP dividends
However, what if you're an investor who needs a steady income for the rest of this year and, therefore, is unwilling to hold onto BP shares? Are there any other blue-chip firms that have decent dividend yields and, ideally, a rising dividend?

Clearly, if you're going to throw out BP, then you need to replace it with one or more megacaps with a reputation for stable and rising dividends. So, forget about FTSE 250 firms or any companies outside of the upper ranks of the FTSE 100 index, because you need big, stable and cheap companies.

Here are five big-yielders to get started with:

Quoted prices reflect London Stock Exchange listings. *Closing price on Monday, June 21. **Forecast dividend yield.

As you can see, these companies pay hefty dividend yields of between 5.8% and 8.1%. However, these are prospective yields based on consensus forecasts for this year's dividends. Therefore, actual yields may turn out to be higher or lower than those shown in the third column of the table.

Five global giants
Each of the five companies listed above is a leader in its field and a household name.

National Grid is an international electricity & gas company; Aviva is the world's fifth-largest insurance group; Vodafone is a world leader in mobile telecoms; Royal Dutch Shell is a global energy and petrochemical company; and GSK is the world's fourth largest pharmaceutical firm.

What's more, each of these companies has a record of increasing its dividends -- year after year after year. Of course, anything is possible, so one or more of these firms could suffer a similar slump to BP. That said, I see these five as among the most stable firms in the Footsie.

In addition, an equal investment in all five firms would produce an average (and highly diversified) dividend yield of 6.7% a year. That's a lot more than BP will pay any time soon, and much, much higher than you can earn in any interest-bearing cash account.

In summary, if you're looking for a big dividend payer to replace BP, then start your search with these five firms before spreading your net wider.

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