Pioneer Natural Resources (PXD -0.41%) pays one of the highest-yielding dividends in the oil patch. While its most recently declared payment is down from last quarter due to lower oil prices, it still clocks in at an attractive 9% yield at the current share price.
The oil stock has the potential to continue paying a monster dividend yield. It's an enticing option for passive income seekers as long as they're fine with some variation from quarter to quarter.
Drilling down into Pioneer's dividend
Pioneer Natural Resource recently declared its fourth-quarter dividend payment using its fixed-plus-variable framework. The base payment remained the same as the third quarter at $1.10 per share, while the variable component came in at $4.61 per share. That brought the total dividend outlay to $5.71 per share, giving it a roughly 9% annualized yield at the current stock price.
That's lower than the third quarter payment of $8.75 per share, which featured the same base of $1.10 per share and a $7.65 per share variable dividend. This lower dividend payment directly results from the company's framework, which sees it pay a fixed base quarterly dividend and up to 75% of its free cash flow via a variable dividend. Because free cash flow declined in the third quarter due to lower oil prices, it had less money to pay out via the variable component.
Pioneer's latest dividend payment brought its 2022 total to around $26 per share this year. That gave it a more than 10% dividend yield for the full year, based on its recent stock price. That's more than double the energy sector's average of around 4% and nearly five times the S&P 500's roughly 2% dividend yield this year. It also led its peer group.
The fuel to continue paying monster dividends
Pioneer Natural Resources' dividend framework should allow it to remain a big-time dividend stock as long as oil prices cooperate. The oil company estimates that it can pay out around $19 per share each year in dividends if oil averages roughly $80 a barrel in the 2023 to 2027 timeframe, slightly less than the current price in the mid-$80s. That implies about a 7% dividend yield at the current stock price.
At $100 a barrel, the company could pay out an average of $28 per share each year in dividends, implying an 11% yield. That amount would rise along with crude prices, with $120 oil giving it the fuel to pay $36 a share in dividends.
However, the framework has its downside. If oil prices fall into the $60s, for example, Pioneer would only be able to afford to pay out about $10 per share each year in dividends. That's about a 4% yield at the current share price, which is still relatively attractive compared to an S&P 500 index fund.
Pioneer does plan to steadily increase its fixed base dividend each year. It has been growing it at an outsized rate in recent years. That should continue in the future since Pioneer is also investing capital in expanding its oil and gas production, targeting 5% annual growth. That will enhance its ability to capture the future upside of higher prices. It's also opportunistically repurchasing shares and has reduced its outstanding shares by 3% over the past year. That combination of production growth and a falling share should enable it to steadily grow its base payment, putting a higher floor under the dividend payment.
Big-time dividend potential
Pioneer Natural Resources offers income investors a potentially high upside dividend. While its variable payments will ebb and flow with oil prices, they could remain relatively high even if crude moderates a bit. Meanwhile, its fixed base payment should steadily head higher. That makes it an intriguing option for those seeking a potentially high-octane passive income stream.
