Devon Energy (DVN) debuted a one-of-a-kind dividend policy last year. The oil firm pioneered an industry first with a fixed-plus-variable payout plan. It adds variable payments of up to 50 percent of its excess cash flow every quarter to the basic quarterly dividend it already pays.
As a result, Devon Energy’s free cash flow is increasing as a result of higher oil prices, allowing it to grow into a huge passive revenue producer. The company just raised its dividend again, reaching another all-time high. Given the current oil market circumstances, Devon could well continue paying large dividends in the following quarters.
Another cash-flow gusher
Devon Energy released its first-quarter financial results last week. The oil firm generated $1.8 billion in operating cash flow during the first three months of this year, up 14 percent from the fourth quarter. Meanwhile, it produced a record $1.3 billion in free cash flow, an 18 percent sequential increase.
The oil company used its cash flow to pay for capital expenditures and make a $0.16-per-share dividend quarterly payment. Even after paying for these two cash expenses, the firm had over $1.3 billion remaining in free cash flow. It issued half of that money as a variable dividend, bringing its quarterly payout to an all-time high of $1.27 per share, up 27 percent from its previous payment.
Devon increased its cash balance from $354 million to $2.6 billion while returning $891 million to investors through stock buybacks and dividends. Since beginning its current repurchase program, the firm has retired 3% of its outstanding shares.
Over the past year, Devon Energy has increased its quarterly cash dividends. Overall, it has grown its fixed-plus-variable payout by a jaw-dropping 270%. During the first quarter of 2021, it invested $0.34 per share in total; during the first quarter of 2022, it spent $1.27 per share in total. The firm boosted its fixed base dividend by 45% while also increasing the variable dividend significantly