* Ups dividend to 9.75 cents from 9.5 cents per share
* Q1 profit $3.2 bln vs $3.1 bln consensus forecast
* Rosneft contribution down 75 pct vs. Q4 2013
* Shares up 0.8 pct (Adds analyst comment, share price)
By Sarah Young and Karolin Schaps
LONDON, April 29 (Reuters) - BP raised its quarterly dividend for the second time in six months and said more share buy-backs were on the cards, showing how the British oil company's asset sales are providing more cash for investors.
Shareholders have urged big oil companies such as BP and Shell to control spending and give back more cash because of concerns over rising costs in the oil and gas industry and their impact on profitability.
"As well as progressive growth in the dividend per share, we expect to use surplus cash to support further distributions through share buy-backs or other mechanisms," Chief Executive Bob Dudley said in a statement.
BP on Tuesday reported a 24 percent drop in first-quarter underlying replacement cost profit to $3.2 billion, slightly ahead of a consensus forecast of $3.1 billion.
The profit fall reflected weaker refining margins and lower production as the company has shed assets to raise funds for shareholder payouts. The group also wrote off $521 million related to its decision not to proceed with a shale project in the Utica basin in the United States.
Profits were also hit by a drop in the contribution from BP's stake in Russian oil company Rosneft.
BP, the largest foreign investor in Russia through its nearly 20 percent stake in the Kremlin's state oil champion, has said repeatedly that it will stand by its investments in Russia since Moscow's intervention in Ukraine.
BP said this week it was considering what U.S. sanctions against Rosneft head Igor Sechin, would mean for its business.
The share of profits BP generated from Rosneft shrank by 75 percent in the quarter for two reasons - the weakening rouble as Russia's economy comes under pressure from the standoff with the West over Ukraine, plus the absence of a tax charge boost in the previous period.
Russian production made up about a third of BP's output in the first quarter.
Cash flow came in at $8.2 billion, more than double the amount from the same period last year.
BP, Europe's third biggest oil company by market capitalisation, will raise its quarterly dividend to 9.75 cents per share, to be paid in June, 8.3 percent higher than a year earlier. This is also above the 9.5 cents announced in October and paid for the subsequent two quarters.
The group's dividends are returning towards levels last seen in 2009 before the Gulf of Mexico oil spill in 2010, after which dividends were suspended for three quarters.
Before the Gulf spill, BP had paid a dividend of 14 cents.
"Overall I think it's a solid set of results which holds out the hope that BP can sustain increased distributions going forward," Liberum analyst Andrew Whittock said. He also said he was cautious over Russia but it was currently unclear how sanctions might impact BP.
BP's shares were up 0.8 percent to 492.6 pence by 0936 GMT.
The higher payouts will be partially funded by the company's asset sales. By the end of 2015, it has said it will sell $10 billion worth of assets, in addition to the $40 billion worth of disposals made to help pay for the 2010 Gulf of Mexico oil spill.
To date it has offloaded $3 billion worth, including four oilfields in Alaska earlier in April. Disclosing the price on Tuesday, BP said these were sold for up to $1.5 billion.
The company, still overshadowed by litigation related to the 2010 spill, said provisions to cover its clean-up, fines, compensation and legal costs had not risen in the quarter and remained at $42.7 billion. In March, BP won 24 new leases in the Gulf of Mexico, with the company saying on Tuesday that final awards subject to regulatory approval.
In the United States, BP said in March that it would separate its U.S. shale assets into a new wholly-owned business to try to improve its competitiveness. Disappointing appraisal results in Utica meant it would take a $521 million write-off on that project.
Norwegian oil firm Statoil also reported first-quarter earnings above expectations on Tuesday, while Italy's ENI's profits were in line.
Royal Dutch Shell and France's Total are both due to report first quarter results later this week.
(Reporting by Sarah Young, additional reporting by Karolin Schaps; editing by Kate Holton and Jane Merriman)