Pioneer Natural Resources (PXD) generated a gusher of cash flow during the second quarter, fueled by higher oil prices and recent acquisitions. That gave the oil company confidence to accelerate the timing of its variable dividend program. At $1.51 per share, the inaugural payout is nearly three times its regular quarterly dividend payment of $0.56 per share. 

That big-time payout is likely the first of many for the oil company in the coming years as it aims to return the bulk of its free cash flow to investors.

A cheering man holds a calculator with the word dividends on the screen.

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Drilling down into Pioneer Natural Resources' second-quarter results

Pioneer Natural Resources produced strong second-quarter results. The oil company's output soared 68% year over year to 629,468 barrels of oil equivalent (BOE) per day, near the top-end of its guidance range. Fueling that gusher was the acquisition of Parsley Energy and DoublePoint Energy. 

The company also benefited from a strong rebound in commodity prices during the quarter. Overall, it realized $46.82 per BOE in the quarter, up from $17.61 in the year-ago period, driven in part by an improvement in the price of oil from $23.16 a barrel to $64.55 a barrel. 

That one-two punch of higher production and pricing enabled Pioneer Natural Resources to produce $1.5 billion in cash flow from operations during the period. After funding its capital expenses, Pioneer Natural Resources generated $616 million in free cash flow.

A big-time dividend with more to come

Pioneer Natural Resources had been using its growing free cash flow to bolster its already strong balance sheet. However, with crude prices continuing to rally this year, the company is now returning most of that windfall to shareholders. The oil producer initially planned to start making variable dividend payments in 2022 based on this year's free cash but opted to accelerate the program because of strong pricing this year. 

Overall, it's paying $490 million in dividends during the second quarter, which includes the $370 million, or $1.51 per share, variable dividend, and its regular quarterly dividend. That's about 75% of its free cash flow in the period. This payout ratio is an increase from its preliminary plan to pay out about 50% of its free cash flow this year via variable dividends in 2022.

That payout is likely the first of many from the company. Pioneer currently estimates that it will produce about $3.2 billion of free cash flow this year, given that crude prices are now in the low $70s. It sees the potential of paying out up to $1.1 billion via variable dividends this year. That's in addition to an already attractive quarterly dividend that yields 1.6%, above the S&P 500's 1.3% average. Added together, Pioneer estimates that its annualized base plus variable dividend will yield around 8% during the second half of the year.

Longer-term, Pioneer sees the potential of being a dividend machine. If oil prices cooperate, the company could produce a cumulative $23 billion in free cash flow between this year and 2026 at the current market price. It sees the potential of returning around 80% of that money to shareholders via the regular payout and variable dividend. That implies the potential for a dividend yield approaching 9% based on the current share price. That makes it a potentially monster dividend stock.

However, that all depends on oil prices. If they plunge -- which has happened twice over the past several years -- Pioneer might not pay any variable dividends in a given quarter or year. On the other hand, if oil prices continue rising or Pioneer boosts its free cash flow in other ways like making additional acquisitions, it could pay out an even bigger gusher of variable dividends in the future.

An intriguing dividend stock

Pioneer Natural Resources is accelerating its plan to pay a variable dividend thanks to higher oil prices. That has the oil producer on track to pay a gusher of dividends this year as the inaugural payout is almost three times its regular quarterly dividend. With the potential to make many more big-time payments in the future if oil prices cooperate, Pioneer looks like an interesting stock for investors willing to take the risk on this potentially high reward income play.