Devon Energy's (DVN -0.89%) dividend has been unstoppable since the company launched the industry's first fixed-plus-variable framework early last year. The combined payment has risen every quarter and is now up an eye-popping 200%.

While higher oil and gas prices have been the primary factor driving Devon's dividend higher, the company has taken steps to add even more fuel sources. It most recently entered into a liquefied natural gas (LNG) partnership that could give it more fuel to grow the dividend in the future.  

Drilling down into the deal

Devon Energy has signed an agreement for an LNG export partnership with Delfin Midstream. Devon is finalizing a long-term liquefaction capacity contract and will invest in Delfin. That company is working to develop up to four floating LNG vessels capable of producing 13 million tons of LNG per year. 

The capacity agreements would see Devon take at least 1 million tons per year of annual liquefaction capacity from Delfin's first floating LNG vessel. It could also take up to an additional 1 million tons per year from either Delfin's first or a future floating LNG vessel, bringing the total to up to 2 million tons per year. That's a significant commitment since Delfin's modular projects only require 2 to 2.5 million tons per year of long-term contracts to begin construction. The company has already signed agreements with a couple of other customers, putting it on track to make a financial investment decision on its first floating LNG vessel by the end of this year. 

How this could provide more fuel to grow the dividend

The deal would allow Devon to liquefy a portion of its natural gas production and export it to global markets. That would enable the company to fetch a higher price for its gas because global gas prices tend to trade at a premium to U.S. prices due to the country's abundant resources and limited export capacity. Devon also stands to profit from its direct investment in Delfin. It would get a share of the profits as the company liquefies and exports gas for other customers.

While the Delfin deal won't pay dividends immediately since the first floating LNG facility wouldn't start service until 2026, it positions the company to make more money on its gas production in the future. That would directly aid Devon's ability to pay dividends. The company's variable dividend framework sees it pay out up to 50% of its free cash flow in variable dividends each quarter. As free cash flow rises, so does the variable payment. 

This deal is Devon's latest step to enhance its ability to produce free cash flow this year. In July, the company used its financial flexibility to acquire the leasehold interests and related assets of RimRock Oil and Gas in the Williston Basin for $865 million. It paid an attractive value of 2.2 times cash flow and a 25% free cash flow yield for the assets. That highly accretive deal enabled Devon to increase the fixed portion of its dividend by 13%. 

Meanwhile, Devon agreed to buy Validus Energy for $1.8 billion last month to bolster its Eagle Ford position. It's paying an even more attractive price of two times cash flow and a 30% free cash flow yield. Because of that, the deal will also be immediately accretive to its free cash flow per share. That leads Devon to believe it can increase its variable dividend by up to 10% per share when the transaction closes. 

Focused on enhancing shareholder returns

Devon Energy has a long history of paying dividends. While its payment has ebbed and flowed over the years, Devon has paid its investors a dividend for 30 straight years. It has taken several steps to enhance that payout in the past year, including adding in a variable component and making investments to grow its cash flow. That positions the company to continue paying dividends, making it an enticing option for those seeking a high-octane income stream.