Pioneer Natural Resources (PXD 0.10%) is becoming a prodigious passive income producer. The oil company has significantly increased its quarterly dividend over the years. Meanwhile, it's complimenting that growing payout with oil-fueled variable dividend payments. With crude prices and its cash flow soaring, the company is paying a gusher in dividends these days.
Cashing in on higher crude prices.
Pioneer Natural Resources recently reported its first-quarter results. The oil company produced an average of 638,000 barrels of oil equivalent per day during the quarter, which was in the upper half of its guidance range. That enabled it to capture surging crude prices in the quarter. It realized an average of $94.60 per barrel of oil to go along with strong pricing for natural gas and natural gas liquids (NGLs). That enabled the company to generate enough cash to cover its capital expenditures with $2.3 billion to spare.
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The oil company returned $2 billion of that money to shareholders or 88% of the total. The base return came from the company's fixed quarterly dividend of $0.78 per share. In addition to that, Pioneer paid a variable dividend of $6.60 per share, which was 75% of its post-dividend free cash flow. The company also repurchased $250 million of stock during the quarter. It used the remaining cash to strengthen its already top-tier balance sheet.
The combined dividend payment of $7.38 per share implies a 13% annualized dividend yield on the recent share price. That's the highest dividend yield in its peer group and the S&P 500, where the average dividend yield is around 1.7%.
A growing gusher of dividend payment
Pioneer Natural Resources' dividend has surged in recent years. The company started to prioritize dividend payments in 2018 when it quadrupled its bi-annual dividend payment from $0.04 per share ($0.08 per year) -- a level it had held flat for a decade -- to $0.16 per share ($0.32 per year). It has since switched to a quarterly payment schedule while significantly boosting the fixed payment, steadily increasing it to the current level of $0.78 per share each quarter.
Last year it started complimenting that fast-growing fixed payment with a variable dividend payment of 75% of its excess free cash flow each quarter. These combined payments have taken its dividend to another level. Pioneer Natural Resources paid $6.83 per share in dividends last year and has already made $11.16 per share in payments in 2022.
The company estimates that it could pay out about $27 per share in dividends if oil averages $100 a barrel this year, implying a 12% dividend yield. The dividend outlay and yield will rise and fall with crude prices. At $80 oil, Pioneer would pay out $23 per share in dividends (10% yield) while it could pay more than $30 per share in dividends (14% yield) at $120 oil.
Pioneer could be a dividend-paying machine for years to come. The oil company has the best margins and lowest cash costs in its peer group, enabling it to generate lots of free cash flow. Meanwhile, it has at least 20 years of low-cost drillable acreage, giving it the inventory to steadily grow its production. Add in the positive impact of continued share repurchases and debt reduction, and Pioneer's cash flow per share could keep rising even if crude oil prices plateau.
A potentially prodigious passive income producer
Pioneer Natural Resources is generating more cash than it needs to maintain and expand its output these days. That's giving it a windfall to return to investors, which it's doing by paying out a gusher in dividends. If oil remains high, the company could continue making sizable variable dividend payments to go along with a growing base dividend. That makes Pioneer an enticing option for investors seeking a big-time oil-fueled dividend.
