The data on dividends is unmistakable. Dividend-paying companies have outperformed non-paying companies by more than two times over the past fifty years (9.2% average annual total return versus 4.3%), according to data from Ned Davis Research and Hartford Funds. Meanwhile, the highest returns come from dividend growers (10.2%).
Some companies are better at growing their dividends than others. ConocoPhillips (NYSE: COP), Diamondback energy (NASDAQ: FANG)And EOG Resources (NYSE: EOG) have delivered strong dividend growth, which is likely to continue. That makes this oil stock dividend attractive options for investors looking for more powerful investments total return.
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ConocoPhillips recently increased its regular quarterly dividend by a whopping 34%. This marked a continuation of the strong dividend growth of recent years. The oil giant also increased its payments by 14% in 2023 and 11% in 2022.
The oil producer wants to be among the top dividend growth stocks in the future. It plans to deliver dividend growth in the top 25% of all companies in the US S&P500.
Boosting the company’s rising dividend is a combination of profitable acquisitions, high-return capital projects and meaningful share buybacks. ConocoPhillips has taken advantage of opportunities to expand its low-cost resources in recent years to increase free cash flow. It is for example currently in the process of completing its $22.5 billion acquisition Marathon oil. The deal will immediately be accretive to cash flow per share. In addition, the company expects to realize more than $500 million in annual cost savings. ConocoPhillips plans to use a significant portion of its growing free cash flow to continue buying back its shares. The oil company has retired 14% of its outstanding shares in recent years, boosting its ability to grow dividends per share.
Diamondback Energy has grown its base dividend at an industry-leading average quarterly compound annual rate of 8% since it began paying out in 2018. During that period, the company has increased the payout by as much as 620%.
The oil company’s consolidation strategy has contributed to its strong dividend growth. Diamondback has repeatedly made valuable acquisitions to increase its scale in the Permian Basin. Those deals have lowered the price costs while increasing free cash flow.
Diamondback recently closed its largest deal ever, purchasing Endeavor Energy Resources for $26 billion. The company expects the very positive acquisition to add 10% to free cash flow per share next year. The oil company plans to return at least 50% of its oil to grow free cash flow to shareholders through a growing basic dividend, share buybacks and variable dividends. It will use the remaining 50% to strengthen its already healthy balance sheet.
EOG Resources recently increased its regular dividend by another 7%. The oil company has delivered 27 years of sustainable, growing regular dividends. The company has increased its payout seven years in a row to grow at a compound annual rate of almost 22% in the past decade.
The company has used another fuel source to grow its dividend. The company has avoided costly acquisitions, preferring to expand organically. EOG Resources has a knack for discovering low-cost, high-return oil and gas resources in the US. The company only invests in drilling new wells that exceed the high return threshold. That has allowed the company to generate significant and growing free cash flow.
EOG Resources is producing more cash than it needs to grow its business and pay its rapidly rising regular dividend. It uses these excess funds to repay debt, buy back shares and pay special dividends. The company’s balance sheet is currently so strong that it plans to return more than 100% of its annual free cash flow to shareholders in the near term by opportunistically buying back shares and paying special dividends.
ConocoPhillips, Diamondback Energy and EOG Resources have delivered strong dividend growth in recent years. They expect to have enough fuel to further increase their dividends in the future. That makes them attractive opportunities for investors looking for income growth and strong total return potential.
Consider the following before buying shares in ConocoPhillips:
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Matt DiLallo has positions in ConocoPhillips. The Motley Fool holds and recommends EOG Resources. The Motley Fool has a disclosure policy.
These Oil Stocks Deliver High-Octane Dividend Growth was originally published by The Motley Fool
