After a brief dip back into the mid-$70s on macroeconomic concerns, crude oil has roared back in recent weeks. It rebounded above $90 a barrel after OPEC agreed to slash its output to push prices higher. Crude oil could have further to run if demand strengthens or the sector encounters an unexpected supply issue.
Several oil companies enable investors to immediately cash in on higher oil prices because of their unique capital return strategies. Three of the top oil stocks to buy to cash in on the prospect of higher crude oil prices are ConocoPhillips (COP 4.56%), EOG Resources (EOG 4.21%), and Pioneer Natural Resources (PXD +0.00%).
NYSE: COP
Key Data Points
Three ways to win
ConocoPhillips launched a unique three-tiered capital return program this year, allowing it to send additional money back to shareholders depending on oil prices. It initially set a target to return $7 billion across the following tiers:
- A regular base quarterly dividend payment of $0.46 per share, giving it an estimated total dividend outlay of $2.4 billion for the year.
- Roughly $3.5 billion of share repurchases.
- A variable return of cash (VROC) of about $1 billion to be paid in quarterly installments. It set the first one at $0.20 per share.
However, with crude prices soaring this year, ConocoPhillips has more than doubled its capital return plan to $15 billion. It has returned that additional money to shareholders through further repurchases and a higher VROC payment. It bought back $2.3 billion in shares in the second quarter alone to go with a $1.40-per-share VROC. With oil back in the $90s, ConocoPhillips is likely to continue making significant VROC payments to complement its base quarterly dividend, which will probably increase before the year ends. Those VROC payments allow investors to immediately cash in on higher crude oil prices.
NYSE: EOG
Key Data Points
Sending investors something special
EOG Resources unveiled new guidance for its capital return strategy earlier this year. The oil producer set a target to return at least 60% of its free cash flow to shareholders each year. The base return will come from its rapidly rising quarterly dividend. It has grown that payout at a more than 20% annual rate, recently pushing the annualized payment up to $3 per share.
If the base dividend falls short of EOG's capital return target, it will send additional cash to shareholders through paying a special dividend or making opportunistic share repurchases. The company has already declared $4.30 per share of special dividends this year as it works toward delivering on its goal of returning 60% of its free cash to shareholders. With oil in the $90s, EOG will likely continue paying sizable special dividends to keep its promise to shareholders.
NYSE: PXD
Key Data Points
A monster oil-fueled dividend
Pioneer Natural Resources is returning the bulk of its oil-fueled windfall to shareholders this year. The foundation of that return is a rapidly rising base dividend. It's up more than 40% over the past year. In addition, Pioneer Natural Resources pays a variable dividend of up to 75% of its post-base-dividend free cash flow each quarter. The company will also return additional capital to shareholders by making opportunistic share repurchases.
The company used all three levers this year. Its most recent combined dividend totaled $8.57 per share, including its $1.10 per share base payment and $7.74 per share variable dividend. Annualized that rate gives Pioneer Natural Resources a whopping 13.5% dividend yield at its recent share price. In addition to the monster dividend, Pioneer also repurchased shares. Overall, it returned 95% of its second-quarter free cash flow to shareholders. With higher oil prices boosting its free cash flow, Pioneer Natural Resources could continue paying massive dividends in the coming quarters.
Cash in on higher crude oil prices
ConocoPhillips, EOG Resources, and Pioneer Natural Resources set capital return strategies to send shareholders more of their growing oil-fueled windfalls. With oil prices recently topping $90 a barrel again, shareholders are likely to see additional big cash payments heading their way. That makes them great oil stocks to buy for those seeking to literally cash in on rebounding crude prices.
