ConocoPhillips (COP -0.34%) launched a strategy to differentiate itself from its oil-producing peers in late 2016. Instead of focusing on growing production, the U.S. oil giant aimed to increase its cash flow. That would enable it to make money for investors in almost any oil price environment.

The company's strategy is paying dividends, which was one of the main themes on its second-quarter conference call. CFO Don Wallette discussed the company's cash flow-generating ability and how it allocates those funds to create value for shareholders.

Oil pumps with money in the background.

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The cash continues to flow

Wallette pointed out on the call that "we generated $3.4 billion of cash from operations" during the second quarter. That was easily enough to cover the company's capital expenses, which totaled $1.7 billion in the quarter. As a result, the company produced $1.7 billion of free cash flow during the quarter, pushing its year-to-date total to $3 billion.

Wallette further noted: "This quarter represents our seventh consecutive quarter of free cash flow generation across a broad range of prices, underscoring our commitment to capital discipline. And importantly, over this seven-quarter time frame, cash from operations has more than covered all capital, dividends and share repurchases." Because the company is covering both its capital expenses and shareholder returns, its cash pile continued building.

ConocoPhillips has further boosted its cash position with asset sales, including closing $600 million during the second quarter. Those sales have given the company the funds to make some smaller acquisitions. Even with those purchases, the company's cash position increased by about $500 million since the beginning of the year to $6.9 billion at the end of the second quarter. That number will continue growing because the company expects to receive $2 billion from the sale of its U.K. assets when that deal closes later this year.

A barrel of oil coming through money.

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Richly rewarding shareholders

As Wallette noted, ConocoPhillips is returning a substantial portion of its free cash flow to shareholders. He pointed out on the call that, during the second quarter, the company paid out "roughly $350 million in dividends and $1.25 billion of share repurchases." That "represented a return of capital to shareholders of $1.6 billion, or 47% of CFO," or cash from operations.

The oil giant has been steadily ramping up its shareholder returns over the past few years. In early 2017, ConocoPhillips increased its dividend by 6%. It followed that up with two more raises last year, boosting the payout by 7.5% in February and another 7% in October. Meanwhile, the company began last year with a $2 billion share repurchase plan, which it boosted up to $3 billion in July. It then targeted another $3 billion in share repurchases to start this year before adding $500 million to its plan in July.

The company will probably continue boosting shareholder returns, given its growing cash flow and cash on hand. It will probably announce another dividend increase this fall and could expand its buyback pace for 2020. It could also begin paying special dividends when higher oil prices provide it with additional cash flow. Wallette noted on the call that it wouldn't rule out a variable payout to complement its buyback plan if that's what investors want.

Turning oil wells into ATMs

ConocoPhillips' strategic focus on growing cash flow instead of just oil output is paying dividends. The company is only investing in its highest returning opportunities, which is enabling it to generate free cash flow. That's giving it the money to reward shareholders through a growing dividend and meaningful buyback program. With its plan working, investors can expect the company to continue producing more cash, the bulk of which it will probably send their way. That's what makes it one of the top oil stock to buy these days