What happened

Shares of Continental Resources (NYSE:CLR) took off on Tuesday, rising more than 11% by 10:30 a.m. EDT. Driving up the oil and gas company's stock price was its plan to start returning cash to shareholders.

So what

Continental Resources became the latest shale driller to unveil a capital return program. Like many of its peers, the oil company is taking a balanced approach to sending cash back to investors. Not only did it initiate a small quarterly dividend with an initial yield of around 0.6%, but it also authorized a $1 billion share repurchase program.

A row of oil pumps with cash in the background.

Image source: Getty Images.

Continental Resources has worked hard over the past few years to reduce costs and pay down debt so that it could be in a stronger financial position. As a result of those efforts, the company has line of sight to achieve its targeted debt level by year-end. It also expects to generate between $700 million to $800 million in annual free cash flow over the next five years -- assuming oil averages $60 a barrel -- even as it expands its output at a 12.5% compound annual rate. That puts it in position to start returning some of its growing excess cash to investors.

Now what

Continental Resources has shifted its focus over the years from growing as fast as it can to expanding at a more modest pace so that it can produce free cash. It has now hit an inflection point where it has the financial flexibility to start returning some of that money to shareholders. That makes it a much more compelling oil stock for investors since it now matches up much better with its peers, which are already returning boatloads of cash to their shareholders.