Oil producers Devon Energy (DVN -0.99%) and Diamondback Energy (FANG -0.35%) are currently cashing in on higher crude prices. That's giving them the fuel to pay some massive dividends due to their innovative dividend-payment policies. Devon offers a more than 9% annualized dividend yield, while Diamondback's projected payout is closer to 10%.

However, Devon and Diamondback tie a portion of their dividend payments to the cash flows they can produce. Thus, if crude prices come down, their cash flows and dividends will follow. Because of that, these big-time dividend stocks aren't well suited for investors seeking a steady income stream.

Drawing up a new blueprint for paying dividends in the oil patch

Devon Energy is a trendsetter. The oil company launched the industry's first fixed-plus-variable dividend program last year. Devon aims to make fixed base dividend payments each quarter that it can sustain at lower oil prices. On top of that, the company intends on paying out up to 50% of its free cash flow each quarter via a variable dividend.

Both dividend payments have soared over the past year. Devon started by paying an $0.11 per-share fixed quarterly dividend. However, that payment increased by 45% to $0.16 per share each quarter earlier this year. Meanwhile, Devon sees another raise coming, fueled by its pending acquisition of more cash-gushing oil wells in the Williston Basin. 

Devon has also steadily increased its variable dividend. It recently paid out $1.27 per share in dividends ($0.16 base and $1.11 variable), well above its first variable dividend of $0.19 per share in March of 2021. That implies a roughly 9% annualized dividend yield at the current share price if Devon can maintain that payout level. 

What's unclear is how long Devon can sustain its massive variable dividend. As long as oil prices remain in the triple digits, Devon should be able to continue generating a gusher of free cash flow to support large variable dividends. However, Devon's variable dividend could decline if crude prices fall or the government passes a windfall profit tax on oil companies.

Taking its payout to another level

Diamondback Energy took a page out of Devon Energy's playbook last year. It set a policy to return 50% of its free cash flow to shareholders each quarter via a growing base dividend, supplemented by share repurchases and variable dividends.

The oil company has been growing its base dividend at a rapid rate since initiating the payment in 2018. It has delivered an industry-leading 18% compound annual growth rate since that time.

It started complementing that fast-growing dividend with share repurchases last year before it made its first variable-dividend payment earlier this year. Diamondback Energy recently declared its second variable dividend, keeping the combined payment flat with the first-quarter amount, reflecting a 7.1% higher base payment offset by a slightly lower variable amount.

Both payments could head higher in the near term. Diamondback Energy recently boosted its capital return program to 75% of its free cash flow each quarter. As long as oil prices remain elevated, Diamondback Energy should have the cash flow to continue paying a gushing dividend. However, the company does reserve the right to allocate some of its capital return to share repurchases. Because of that, Diamondback Energy could opt not to pay variable dividends if it sees a better opportunity by repurchasing stock. Furthermore, there's also the risk that its cash-flow gusher could decline if oil prices fall or the government passes a windfall profit tax on oil producers like Diamondback. 

These oil-fueled dividends are riding high for now

Devon Energy and Diamondback Energy currently pay monster dividends thanks to the cash flows they can produce at high oil prices. They could continue to pay big-time dividends as long as oil prices remain high and the government doesn't start taxing their windfall. However, there's a real risk that these high-flying dividends could fall in the future. Because of that, they're not the best options for investors seeking a sustainable income stream.