The Permian Basin has become a massive growth engine for the U.S. oil industry over the last few years. The driving force has been the discovery of new techniques that have unlocked the treasure trove of oil and gas trapped in the region's tight underground rock formations. That has unleashed a wave of drilling that's sent output soaring. Oil companies are now producing an ever-increasing gusher of cash flow thanks to the region's low drilling costs, higher oil prices, and efficiency gains.

While the industry had been plowing that money into drilling more wells and acquiring additional land, it has recently reached an inflection point; many drillers no longer need to invest as much money to maintain a healthy growth rate. That has freed them up to allocate that cash to other activities. For the most part, they're returning their growing windfalls to shareholders through higher dividends and stock buybacks.

A hand pulling money out of an ATM

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Oil dividends are gushing higher

Diamondback Energy (NASDAQ:FANG) was among the first Permian-focused drillers to begin rewarding investors for their patience as it built out its presence in the region. The company did that by initiating a dividend early last year. That was only the beginning. Diamondback has since increased its payout by 50% as part of its commitment to return excess cash to shareholders. That's likely the first of many increases, since Diamondback aims to continue sending more money back to its investors.

Pioneer Natural Resources (NYSE:PXD), meanwhile, paid a meager dividend for years. However, it boosted its paltry payout by 300% early last year. The company would go on to double its dividend earlier this year, bringing its total increase to 700%. Another big boost is up ahead: Pioneer Natural Resources announced its intention to increase its dividend up to about 1% of its stock price, which implies another 133% to 175% jump from the current rate.

Those moves are driving other drillers to consider paying dividends. Concho Resources (NYSE:CXO) already began paying one this year. While it started small, Concho's payout will likely follow those of its peers and head higher in the future, especially since one of the company's stated priorities is to grow the dividend. Meanwhile, several other drillers in the region are nearing inflection points where they'll start generating free cash flow. Once that happens, they could also begin paying dividends.

Binging on buybacks

In addition to paying dividends, many Permian-focused drillers are further rewarding their investors through share repurchase programs. Pioneer Natural Resources, for example, started with a modest repurchase plan last year, aiming to buy back $100 million in shares to offset the dilution of its employee stock awards program. However, the company put an exclamation point on its commitment to return cash to shareholders late last year by authorizing a $2 billion repurchase program. At the time, that was enough money to retire about 8% of its outstanding stock.

Diamondback Energy, meanwhile, followed Pioneer's lead by authorizing a $2 billion repurchase program this month. At the current share price, that's enough money to retire 11% of Diamondback's stock.

Concho Resources could soon join them, given that one of its priorities is to return a portion of its free cash flow to shareholders. Likewise, other drillers focused on the Permian could opt to begin returning cash to investors via a repurchase program, once they hit the point where they're producing more than they need.

Expect more money to continue flowing to investors

Oil companies are starting to reap the rewards of their investments in the Permian Basin. Many are now hauling in more cash than they need to fund growth, which is allowing them to send that money back to shareholders through rapidly rising dividends and significant share repurchase programs. That trend appears poised to continue as the industry turns this low-cost, oil-rich region into an ATM for investors.

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