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

Good news for investors and pension funds: BP (NYSE: BP) today announced that it will reinstate dividend payouts to shareholders.

First loss in two decades
Unveiling its full-year results this morning, BP revealed that, despite a fourth-quarter replacement-cost profit of $4.6 billion, the company made a replacement-cost loss of $4.9 billion in 2010.

In 2009, Europe's second-largest oil producer made almost $14 billion, so the oil giant's fall from grace has been spectacular. Indeed, this is BP's first dip into the red since 1992. Back then, a barrel of oil sold for around $19, less than a fifth of today's price of more than $100 for a barrel of Brent crude.

Oil spill kills profits
Of course, the reason for BP's first loss in nearly two decades is obvious: the catastrophic oil spill at the Deepwater Horizon oil rig in the Gulf of Mexico. After a tragic accident on April 20 caused a blowout at the rig, the subsequent oil spill landed BP with a bill for one of the worst environmental catastrophes in history.

Indeed, BP's income statement included a pre-tax charge of $41 billion toward the cost of the clean-up in the Gulf of Mexico. Of this, $40 billion had been put through the books already, so the additional charge for this latest quarter was a "mere" $1 billion. That said, BP and its partners still have to deal with a civil lawsuit from the U.S. Justice Department, which could lead to tens of billions of dollars in fines for economic and environmental damages, as well as a separate criminal investigation.

Based on an estimate of 4.9 million barrels of oil spilled, this payout could reach $21 billion if BP is held to be grossly negligent. However, BP shareholders should take comfort from Kenneth Feinberg, administrator of the Gulf Coast Claims Facility, who reckons that less than half of BP's $20 billion compensation fund will be needed to meet economic claims.

Selling off the silverware
In order to help fund the costs of the Deepwater Horizon debacle, BP has embarked on an unprecedented program of asset sales. Selling assets in Argentina, Colombia, Egypt, North America, Venezuela and Vietnam raised a load of cash. These disposals helped BP to boost cash balances to nearly $19 billion at the end of 2010.

In addition, BP today announced the sale of its Texas City (scene of a fatal accident in 2005) and Carson refineries. This is in line with BP's stated policy of reducing its U.S. exposure in favor of chasing growth in emerging and developing markets. BP expects both sales to be completed by late 2012.

Dividend back, but halved
Stripping out the exceptional costs relating to the Deepwater Horizon spill, BP's underlying profit for 2010 would have been 52% ahead of the prior year.

What's more, BP's strong cash generation has enabled the company to announce a return to the dividend list. This is great news for income investors, as this will add around 3.4 billion pounds to U.K. dividends in 2011, taking the total to an estimated 63 billion pounds.

However, BP's proposed quarterly dividend of seven cents per share is half the level seen before last year's crisis. Before the spill, BP's payout accounted for around a seventh of all U.K. dividends, but even this reduced payout will be welcomed by private investors and fund managers. What's more, BP has promised a "progressive" payout as its earnings recover.

After the deluge
In the fourth quarter, BP produced 3.7 million barrels of oil and gas per day. Thirty-two new projects (such as those in Australia, Brazil, and the South China Sea) should help BP to meet its target of increasing daily output by 1 million barrels by 2016.

Of course, it won't be smooth sailing for BP from here. For example, oligarchs at BP's Russian joint venture, TNK-BP, are in court today aiming to scupper BP's recently announced strategic alliance with state oil firm OAO Rosneft.

BP's valuation
Since BP shares plunged below 3 pounds last June, they have bounced back by 60%, lifting the firm's market capitalization to 90 billion pounds.

As BP recovers, its dividend should rise again, but steep increases are unlikely until the political heat in the U.S. cools down.

What's more, underlying earnings per share should surge in 2011, putting the company on an undemanding price/earnings ratio. Clearly, BP is in transition, but investors buying its shares now should share in its recovery in 2011 and beyond. While BP faces a bumpy ride, it should be a profitable one!

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Cliff doesn't own shares of any companies mentioned. The Motley Fool has a disclosure policy.