These Oil Stock Investments are Fueling Robust Dividend Increases
The data on dividends is undeniable. Companies that disseminate dividends have surpassed non-payers by more than double over the past 50 years (average annual total return of 9.2% versus 4.3%), as per data from Ned Davis Research and Hartford Funds. The highest returns have stemmed from dividend growers (a 10.2% return).
Certain companies excel at cultivating their dividends more than others. ConocoPhillips (COP -0.17%), Diamondback Energy (FANG 0.46%), and EOG Resources (EOG 0.75%) have displayed remarkable dividend growth, with this trend likely to continue. This makes these dividend oil stocks attractive investments for investors seeking substantial total returns.
Aiming for the top tier
Recently, ConocoPhillips boosted its regular quarterly dividend by an impressive 34%. This marks a continuation of its high-performing dividend growth in recent years. The oil titan also enhanced its payment by 14% in 2023 and 11% in 2022.
The oil behemoth aspires to be in the elite tier of dividend growth stocks in the future. Its objective is to deliver dividend growth within the top 25% of all companies in the S&P 500.
The company's surging dividend is fueled by a mixture of accretive acquisitions, high-yield capital projects, and substantial share repurchases. ConocoPhillips has capitalized on opportunities to augment its low-cost resources in recent years, thereby increasing its free cash flow. For instance, it's currently working on finalizing its $22.5 billion acquisition of Marathon Oil. This purchase will immediately enhance its cash flow per share. Moreover, the company anticipates capturing over $500 million in annual cost savings. ConocoPhillips plans to allocate a substantial portion of its expanding free cash flow towards buying back its stock. Over the past few years, the oil company has retired 14% of its outstanding shares, thereby bolstering its ability to grow its dividend per share.
The sector's leader
Diamondback Energy has cultivated its base dividend at an unprecedented 8% average quarterly compound annual growth rate since its inception in 2018. It has augmented the payment by an impressive 620% during this period.
The oil company's consolidation strategy has played a pivotal role in fostering its high-growth dividend rate. Diamondback has continually engaged in accretive acquisitions to expand its footprint in the Permian Basin. These acquisitions have reduced its costs while enhancing its free cash flow.
Diamondback recently closed its largest-ever deal, purchasing Endeavor Energy Resources for $26 billion. The company assumes this highly accretive acquisition will boost its free cash flow per share by 10% next year. Diamondback plans to distribute at least 50% of its growing free cash flow to shareholders via a raising base dividend, share repurchases, and variable dividends. The remaining 50% will be used to bolster its already robust balance sheet.
A different source of energy
EOG Resources recently increased its regular dividend by another 7%. The oil company has sustained 27 years of steadfast, escalating regular dividends. It has augmented its payout for seven consecutive years while growing it at an almost 22% compound annual growth rate over the past decade.
The company has utilized a distinct energy source to cultivate its dividend. It has refrained from engaging in costly acquisitions, favoring organic expansion instead. EOG Resources has an innate skill for discovering low-cost, high-return oil and gas resources across the U.S. The company only invests in drilling new wells that surpass its high return threshold. This has enabled it to generate substantial and escalating free cash flow.
EOG Resources generates more cash than it requires to expand its operation and raise its rapidly mounting regular dividend. It utilizes these excess funds to pay down debt, repurchase shares, and pay special dividends. The company's balance sheet is currently so robust that it intends to return more than 100% of its annual free cash flow to shareholders in the near term by opportunistically repurchasing shares and paying special dividends.
Investing in dividend oil stocks like ConocoPhillips, Diamondback Energy, and EOG Resources can provide substantial total returns, considering their impressive dividend growth and high returns. To boost its dividend growth, ConocoPhillips has made accretive acquisitions, enhanced its capital projects, and repurchased shares, aiming to deliver dividend growth within the top 25% of S&P 500 companies.
Diamondback Energy, with its consolidation strategy, has increased its base dividend at an unprecedented rate, fostering a high-growth dividend rate by reducing costs and enhancing free cash flow through accretive acquisitions.
