ConocoPhillips (NYSE:COP) is starting to become an income growth machine once again. While the U.S. oil giant has a blemished dividend history after slashing its payout by two-thirds in 2016 -- wiping out more than a decade of growth -- the company restarted its dividend growth engine last year. It has now boosted its payout three times in less than two years and appears as if it has plenty of fuel to continue expanding the payout, making it an appealing dividend growth stock for investors to consider.

Hitting the reset button

ConocoPhillips was a dividend investor's dream stock for more than a decade. From 2001 through 2015, the company increased its payout 15 times, quadrupling the payment from 2001 through 2012. Those generous increases helped push its yield well above 4%, which was more than double what the S&P 500 offered. However, all that came crashing down during the oil market downturn, when the company slashed its payout to preserve cash.

A person handing over cash.

Image source: Getty Images.

The company has started making amends with income-seeking investors in recent years. It began increasing its payout last year, giving investors a 6% raise as part of a new strategy to reward them through both a dividend and a stock repurchase program. ConocoPhillips gave its payout another lift in early 2018 -- this time 7.5% -- and recently boosted its dividend by another 7%, its third increase in the past two years.

In addition to that, the company has steadily increased its stock buyback program, going from an initial plan to buy back $3 billion of its shares up to its current $15 billion authorization. That's enough money to potentially retire 20% of its outstanding stock from 2016's level.

A barrel of oil coming through a dollar bill.

Image source: Getty Images.

Putting a priority on paying investors

ConocoPhillips' aim going forward is to consistently return money to investors via a combination of dividend increases and share repurchases. Overall, it's planning to send back 20% to 30% of its annual cash flows, with the potential to return more via its share repurchase program during periods of higher oil prices. Meanwhile, it's investing to increase those cash flows by at least a 10% compound annual rate, by focusing on developing its highest-return projects. That growing income stream, combined with a falling share count, positions the company to continue increasing its payout. 

ConocoPhillips' strategy has inspired similar plans by rivals. EOG Resources (NYSE:EOG), for example, has prioritized dividend increases. After a long pause during the oil market downturn, the company restarted its dividend growth engine this year. EOG Resources initially gave its investors a 10.4% raise but followed that up with another 19% increase a few months later, boosting its year-to-date total to 31%. That's part of EOG Resources' aim to boost its payout at a more-than-19% compound annual growth rate going forward.

Meanwhile, several other oil companies have unveiled more balanced plans to return capital to their investors now that the oil market is on the upswing. Devon Energy (NYSE:DVN) increased its dividend 33% while also initially authorizing a $1 billion repurchase program. Devon eventually boosted that buyback up to $4 billion, which is currently enough money to retire 20% of its outstanding stock. 

Anadarko Petroleum (NYSE:APC) has also ramped up its cash return to shareholders. The company quintupled its dividend earlier this year, which nearly brought it back up to the level it was a few years ago before the oil giant slashed it to save money during the downturn. On top of that substantial dividend boost, Anadarko has also ratcheted up its buyback program and is currently on pace to repurchase $4 billion in stock by the end of next year, which would cut its share count by more than 10%.

Oil stocks could be great dividend stocks going forward

ConocoPhillips and its oil-producing peers are working hard to regain the trust of income-seeking investors. While the company and most of its peers currently offer below-average yields, they appear poised to become more appealing over time as these oil companies continue scaling their dividends up in the coming years. That dividend growth has the potential not only to turn them into higher-yielding stocks, but when adding in the upside from oil prices and their buyback programs, could enable investors to earn a compelling total return in the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.