Pioneer Natural Resources (PXD) didn't always give its dividend much thought. Up until 2018, the oil and gas producer had paid the same paltry rate of $0.04 per share every six months since slashing it to that level during the financial crisis in 2009.

However, it has put a priority on growing its dividend over the last few years. That's part of a notable shift in the energy company's strategy to focus on generating free cash instead of increasing its production as fast as possible. This new way of operating is delivering excellent results, which was evident in the company's fourth-quarter earnings and 2020 outlook.

A hand placing a coin on a stack of coins.

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Cashing in during the fourth quarter

Pioneer Natural Resources delivered outstanding fourth-quarter results. It produced 363,000 barrels of oil equivalent per day, including 220,000 barrels of oil per day, which was at or above the top end of its guidance range. Thanks to that and a 10% decline in lease operating expenses, the company generated $395 million, or $2.36 per share, of adjusted net income, which beat the analysts' consensus estimate by $0.26 per share.

The highlight of the quarter, however, was cash flow. Overall, Pioneer Natural Resources produced $828 million of cash flow from operating activities. That was enough money to cover the company's capital expenses with $384 million to spare, pushing its full-year free cash flow tally to $540 million.

Pioneer Natural Resources returned all that cash and then some to its shareholders last year via its share repurchase program and rapidly growing dividend. Overall, it repurchased $749 million in stock and paid out $31 million in dividends (increasing the payout twice during the year). Even with that hefty cash return, Pioneer ended the year with one of the strongest balance sheets in the oil patch, backed by $600 million in cash and one of the lowest leverage ratios in the sector.

Another raise is on the way (with the potential for even more income in the future)

Pioneer Natural Resources expects to continue generating free cash flow in 2020, the bulk of which it will likely return to investors. The company set a capital budget range of $3.15 billion to $3.45 billion, which is enough to grow its total production by 15% at the midpoint of its guidance range. Meanwhile, it expects to generate $3.9 billion of operating cash flow this year, which will fund that program with plenty of room to spare.

Pioneer plans to allocate an even larger share of that free cash toward paying dividends in 2020. It announced a 25% increase to its dividend, bringing it up to $0.55 per share each quarter. Add that to last year's two hikes, and this year's annualized payout will be more than 185% above what it paid to investors last year. As a result, it's now an eye-popping 2,650% higher than where it was when the company started increasing the payout in 2018.

In the future, the company expects to give investors a raise each year. In addition to that, it plans to continue using excess cash after funding capital expenses and paying the dividend on opportunistic stock repurchases. The company is also exploring an alternative option of paying a variable dividend to return excess cash to shareholders. The potential payment of these special dividends would allow the company to reward investors with some extra income during periods of higher oil prices.

A high-octane dividend growth stock

Pioneer Natural Resources' dividend has gone from an afterthought to a priority over the past couple of years. As a result, the company has boosted its yield to a much more respectable level of 1.5%. While that's a bit below the S&P 500's average and well below other options in the oil patch, the payout will likely continue climbing in the coming years. Add that to the potential for some special payouts, and dividend investors should at least consider putting this oil stock on their income watch lists.