BP Plc (NYSE:BP) on Tuesday released its first-quarter financial results. While BP reported a sharp decline in profit for the quarter, this was mainly due to a drop in production as the company continued to sell assets. BP, meanwhile, raised its dividend for the second time in six months, a fresh sign that the company continues to get back on track. More importantly, shareholders can expect further rewards as the company plans for share buybacks. This, along with some other recent developments, makes BP a top pick among the major U.S. and European oil and gas companies.

BP reports Q1 results
BP reported its first-quarter results on Tuesday. Other major oil and gas companies such as ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) are scheduled to release their first-quarter results later this week.

BP's first-quarter profit after adjusting for one-time items came in at $3.2 billion, down from adjusted profit of $4.2 billion reported for the same period in the previous year. Analysts were expecting the London-based company to report first-quarter profit of $3.2 billion as well, according to a Bloomberg News Survey.

The decline in profit over the previous year was mainly due to lower production. BP's production, excluding Russia, fell 8.5% on a year-over-year basis to 2.13 million barrels per day in the first quarter of 2014. The decline in production was mainly due to the divestments carried out by the company over the past year. BP has been forced to sell some of its assets in the wake of the Gulf of Mexico oil spill accident in 2010. The company expects production in the second quarter to be lower as well due to planned maintenance in the North Sea and Gulf of Mexico regions.

Increasing shareholder distribution
BP has prioritized shareholder distributions as it continues to dispose of assets. The company surprised investors on Tuesday as it raised its dividend for the second time in six months. BP announced a quarterly dividend of 9.75 cents a share, up from 9 cents a share last year.

BP plans to further increase its shareholder distributions as it believes it is on track to meet its operating cash flow target for 2014. In the first quarter, the company generated $8.2 billion in operating cash flow. Bob Dudley, BP's CEO, noted that an expected material growth in operating cash flow, coupled with disciplined investment, will enable the company to deliver sustainable growth in free cash flow. According to Dudley, this will support increasing distributions to shareholders. He added that apart from progressive growth in dividend per share, the company expects to use surplus cash to support further distributions through share buybacks or other mechanisms.

Some worries, but BP still top pick among majors
BP was written off by many after the Gulf of Mexico oil spill accident; however, the company has made a strong comeback in the past year as it has shed assets. Still, there are some worries. One of the concerns is over the final costs related to the oil spill. The other worry is Russia. BP holds a 19.75% stake in Russia's Rosneft. In the first quarter, BP's share of Rosneft oil and gas production was one million barrels per day, nearly a third of the company's total oil and gas production of 3.13 million barrels per day.

On Monday, the U.S. imposed sanctions on Igor Sechin, CEO of state-controlled Rosneft. The sanctions were imposed as the crisis in Ukraine escalated over the past two weeks. Indeed, this is a worry for BP. However, as of now, no sanctions have been imposed against Rosneft. Also, given Western oil and gas companies' presence in Russia, it is unlikely that the U.S. will be willing to impose further sanctions.

Despite these worries, BP looks the most attractive among major oil and gas companies right now. The company has the highest dividend yield among oil and gas majors. While BP has a dividend yield of over 4%, Exxon and Chevron have dividend yields of 2.47% and 3.16%, respectively. More importantly, the company has shown strong commitment to shareholder distributions. Apart from this, the company has laid out a robust strategy to improve its performance in the U.S. shale arena. Also, BP was recently allowed to bid for new federal government contracts in the U.S., including new oil and gas leases in the Gulf of Mexico, after the Environmental Protection Agency (EPA) lifted a ban on the company to bid for federal government contracts.

Given the progress BP has made, its gains of around 4.75% for the year so far are not too impressive. However, the stock could see further upside as the company continues to get back on track.


Varun Chandan Arora has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.