West Texas Intermediate crude oil prices, the U.S. benchmark, surged past $98 per barrel on Thursday morning as Russia-Ukraine tensions escalated. That puts oil within striking distance of the famed $100 per barrel threshold, a mark that was last achieved in 2014 -- and many thought oil would never get to again.

Devon Energy (DVN -0.20%) and Chevron (CVX -0.49%) are two top oil stocks that are benefiting from rising crude prices. Here's why both companies could keep performing well, even if oil and gas prices eventually fall from these levels.

A technician wearing a hard hat and holding a clipboard monitors oil and gas equipment.

Image source: Getty Images.

Higher oil prices pay immediate dividends

Matt DiLallo (Devon Energy): Oil producer Devon Energy launched an innovative framework last year so that its investors could immediately benefit from higher oil prices. It initiated an industry-first fixed-plus-variable dividend program that pays a flat base payment each quarter. It supplements that with a variable dividend funded by its excess cash. Devon's variable dividend framework sees it pay out up to 50% of its excess free cash each quarter after covering its fixed payment and capital program.

These payments have steadily risen along with oil prices. In 2021, Devon paid a fixed quarterly dividend of $0.11 per share. In addition, it made variable payments of $0.19, $0.23, $0.38, and $0.73 per share. All total, Devon paid $1.97 per share in dividends last year.

With oil prices continuing to rise, Devon is on track to pay even more dividends in 2022. It has already boosted its fixed quarterly payment by 45% to $0.16 per share. On top of that, it declared a variable dividend of $0.84 per share for the first quarter, pushing the total payout to $1 per share. That rate implies a more than 7% dividend yield at Devon's current stock price.

However, given Devon's framework, it will pay an even bigger gusher of dividends as crude prices surge toward $100 a barrel. That ability to immediately cash in on higher oil prices makes Devon a great oil stock to buy in anticipation that oil will barrel toward the triple digits.  

This Dividend Aristocrat is prepared for higher or lower oil prices

Daniel Foelber (Chevron): No one knows how high oil and gas prices will go or when they'll start to fall. But what we do know is that Chevron is well-positioned to be free cash flow positive even if oil is in the low $40 per barrel range.

Chevron's advantageous market position limited losses when oil and gas prices crashed in 2020. And it's a position that boosts Chevron's margins during boom times like what we are experiencing now. On its Q4 2021 earnings call, Chevron CEO Michael Wirth said the following in response to a $90-plus oil and gas market:

There's a lot of resource out there that can be produced economically at prices lower than what we see today. And our breakeven reflects that. And so we are in a period of time here where cash flow is strong. As we mentioned in our comments, the last two quarters have been the best two quarters the company has ever seen. And last year was 25% higher than the best year in our history. So we increased the dividend. Debt came down significantly. And we've guided to the high end of our share repurchase range.

While I agree that Devon Energy is an excellent upstream exploration and production company worth considering now, I think a safer option for most investors is to simply go with Chevron. Chevron has spent the last few years shoring up its balance sheet to improve its financial health. And with oil and gas prices this high, it generates a boatload of free cash flow that it can use to pay and raise its dividend.

Chevron is a Dividend Aristocrat and an S&P 500 component that has paid and raised its dividend for at least 25 consecutive years (Chevron has done it for over 35 years.)

Sturdy businesses with attractive upside

Even if oil and gas prices fall, Devon Energy and Chevron could be great buys for income investors. Investing in equal parts of each stock would give an investor an average dividend yield of 4.7%, which is a sizable passive income stream. And as long as the oil and gas industry continues to be one of the primary causes of inflation, both companies will have the pricing power needed to combat higher costs.