What happened

Shares of Devon Energy (DVN -2.33%) fell 11.4% in November, according to data provided by S&P Global Market Intelligence. The primary factor weighing on the oil stock was its third-quarter report, where the company unveiled a lower total dividend payment. 

So what

Devon Energy launched the oil industry's first fixed-plus-variable dividend framework in early 2021. That policy sees it pay out up to 50% of its post-base-dividend free cash flow via a variable payment each quarter. With its free cash flow steadily rising alongside oil prices, the company's total dividend outlay had increased each quarter. 

However, with oil prices cooling off in the third quarter, Devon's free cash flow fell from its record high in the second quarter. Because of that, the company declared a lower fixed-plus-variable dividend payment of $1.35 per share in the period, which was down from the second-quarter's $1.55 per-share level. On a more positive note, Devon's lower third-quarter payment was 61% above the year-ago level.

Despite the lower dividend, Devon's third-quarter numbers were strong. Cash flow from operations was up 32% year over year. Meanwhile, the company's production was 2% above its guidance, and capital spending was 4% below budget.

While investors didn't like the reduced dividend, analysts saw the sell-off as a buying opportunity. After the report, Raymond James analyst John Freeman raised their price target on Devon's stock from $83 to $87 a share. The analyst noted that the recent pullback in the stock creates a buying opportunity for a company that delivers strong total shareholder returns, has a pristine balance sheet and a large drilling inventory.

Argus analyst Bill Selesky had a similar reaction to the report. That led him to maintain his buy rating on the stock while boosting his price target from $77 to $90 a share. The analyst sees Devon's strong balance sheet, significant liquidity, and fixed-plus-variable dividend program as positives for the stock. 

Now what

Devon Energy's fixed-plus-variable dividend framework has its benefits and drawbacks. On the downside, the payment will fall along with its oil-fueled cash flow, which happened in the third quarter.

However, the company continues to produce a lot of cash. Devon sees cash flow rising 25% year over year in the fourth quarter, fueled by organic production growth and two recent acquisitions. That should give it the fuel to continue paying an attractive dividend. The company's outsized dividend potential makes it a great stock for those seeking a potentially high-octane income stream.