Despite constant attempts by analysts and the media to complicate the basics of investing, there are only three ways a stock can create value for shareholders:

  1. Dividends.
  2. Earnings growth.
  3. Changes in valuation multiples.

In this series, we drill down on one company's returns to see how each of those three has played a role over the past decade. Step on up, Devon Energy (NYSE: DVN).

Devon shares returned 313% over the past decade. How'd they get there?

Dividends provided a moderate boost. Without dividends, shares retuned 284% over the last 10 years.

Earnings growth was decent. Devon's normalized earnings per share grew at an average rate of 6.6% per year from 2001 until today. That's slightly better than the market average, and better than other energy companies like Chesapeake (NYSE: CHK) and EOG (NYSE: EOG) produced over the period.

And have a look at Devon's valuation multiple:

Source: S&P Capital IQ.

This is important, and explains why Devon's shareholder returns have been so strong. Unlike most companies Devon (and most oil companies) were cheap 10 years ago. Not only have rising energy prices boosted earnings, but expanding valuation multiples have increased the amount the market is willing to pay for those earnings, providing wind behind an already booming company's back.

Even better, at 10 times earnings, shares still don't look particularly overvalued today. Going forward, Devon's earnings growth should have no problem turning into tangible shareholder returns.

This stuff might seem basic, but it's worth paying attention to. It's important to know not only how much a stock has returned, but where those returns came from. Sometimes earnings grow, but the market isn't willing to pay as much for those earnings. Sometimes earnings fall, but the market bids shares higher anyway. Sometimes both earnings and earnings multiples stay flat, but a company generates returns through dividends. Sometimes everything works together, and returns surge. Sometimes nothing works and they crash. All tell a different story about the state of a company. Not knowing why something happened can be just as dangerous as not knowing that something happened at all.