Devon Energy (DVN -0.20%) has become quite the dividend stock over the past year. The oil company launched the industry's first fixed-plus-variable dividend framework last year, enabling its investors to cash in on higher oil prices. Devon has since increased its base dividend twice, while growing its variable payment every quarter.

While oil prices have cooled off a bit recently, Devon's dividend has continued rising, fueled partly by a recent acquisition. The oil company is now making another deal, which could give it even more fuel to grow its dividend in the future.  

Dual fuels push the payout higher

Devon Energy recently declared its latest dividend payment of $1.55 per share. That's 22% above the prior-quarter's level and implies a 10.3% annualized dividend yield at the recent share price. Devon increased its fixed quarterly dividend payment by 13% to $0.18 per share, while boosting the variable amount by 23.4% to $1.37 per share.

The primary driver of the base dividend increase was a recent acquisition. Devon bought the leasehold interests and related assets of RimRock Oil and Gas in the Williston Basin for $865 million. This purchase was immediately accretive to Devon's cash flow and free cash flow per share.

It paid a very attractive price for these assets of 2.2 times cash flow with a more than 25% cash flow yield at the projected oil and gas prices for the next year. Given the accretive nature of this deal, Devon was able to increase its base dividend by 13% upon closing the transaction.

Meanwhile, higher oil prices helped drive the variable dividend increase. Devon pays out up to 50% of its free cash flow after covering its base dividend and capital program via the variable dividend. With free cash flow surging to a record $2.1 billion in the second quarter, Devon had the funds to increase its variable payment again.

Adding even more fuel

Devon Energy is now making another needle-moving acquisition. It's buying Validus Energy for $1.8 billion, enhancing its position in the Eagle Ford. Validus owns 42,000 net acres adjacent to Devon's Eagle Ford land, producing an average of 35,000 barrels of oil equivalent per day (BOE/d).

The deal follows the blueprint of the RimRock acquisition. It's immediately accretive to Devon's financial metrics, including cash flow and free cash flow per share. Meanwhile, Devon is getting Validus at an even more attractive price of two times cash flow, with a free cash flow yield of 30% at the current projection for oil and gas prices over the next year.

Because of the highly accretive nature of the deal, Devon expects it will support a variable dividend increase of up to 10%, based on the current pricing forecast. Meanwhile, with only 50% of its free cash flow going toward the variable dividend, Devon expects the other half of the incremental free cash flow to accelerate its ability to return money to shareholders through its $2 billion share-repurchase program. Those repurchases are reducing its share count, helping support per-share dividend growth.

Validus also has some upside potential. Production on its acreage is on track to increase to an average of 40,000 BOE/d next year. The company also comes with 350 future drilling locations and 150 potential refrac candidates. As a result, cash flow should rise in the future, even if oil prices plateau.

Even after making two large deals this year, Devon will maintain a strong balance sheet. It expects to end the year with a leverage ratio of around 0.4 times, well below its target of one times. Because of that, the company has the financial flexibility to continue making acquisitions as highly accretive opportunities arise. Those future deals could give it even more fuel to pay dividends.

A well-fueled dividend

Devon Energy's dividend payment has surged over the past year, fueled primarily by higher oil prices. The company is now complementing that growth driver by making needle-moving acquisitions. Because of that, Devon could have the fuel to continue growing its big-time dividend, even if oil prices taper off a bit. That makes it a potentially high-reward dividend stock.