Shares of Devon Energy (DVN -2.23%) have rocketed nearly 40% this year, pushing the stock price up above $60 a share. However, many Wall Street analysts believe the oil stock has more room to run. Several recently have updated their 12-month price targets, which are as much as 59% above the current price.

That wide gap between Devon's current price and what analysts believe the stock is worth is one reason its dividend yield is currently over 8%. Here's a closer at why analysts see a lot of upside potential in this high-yielding oil stock.  

An oil-fueled dividend

Devon Energy is a trailblazer in the oil patch. The oil and gas producer launched the industry's first fixed-plus-variable dividend framework last year. It pays a fixed base quarterly dividend, giving investors a firm floor of dividend income. In addition, Devon pays a variable dividend of up to 50% of its post-base-dividend free cash flow. Many rivals have since launched similar frameworks over the past year.

With its oil-fueled cash flows surging this year, Devon has paid out a gusher of dividends. It most recently paid a combined $1.35 per share, giving it an 8.8% annualized yield at its recent stock price. While that payment was below the record $1.55 per share dividend Devon distributed to investors in the second quarter; it was 61% above the prior year's level. 

Analysts see significant upside

While Devon's stock price has surged this year, shares have cooled off along with oil prices in recent months. Devon's stock price tumbled 11% last month, partially in response to its lowered dividend. Most analysts believe this sell-off is a buying opportunity.

Raymond James analyst John Freeman boosted that firm's price target on Devon's stock from $83 to $87 per share last month while keeping their buy rating. That price target implies more than 40% upside potential from the company's recent price in the low $60s. The analyst noted that the recent pullback in Devon's shares created a buying opportunity for investors, given the company's pristine balance sheet, strong shareholder return profile, and extensive remaining drilling inventory. 

Argus analyst Bill Selesky is even more bullish, raising his price target from $77 to $90 a share, -- implying over 45% upside potential -- while maintaining a buy rating. The analyst raved about the company's strong third-quarter numbers, fueled by higher production and realized oil, natural gas, and natural gas liquids prices compared to the year-ago period. The analyst also pointed to Devon's robust balance sheet, significant liquidity, and fixed-plus-variable dividend program.

Piper Sandler analyst Mark Lear also boosted their price target on Devon's stock over the past month, raising it from $96 to $98. That level implies nearly 59% upside from Devon's recent price. The analyst also kept their overweight rating on the stock.

Meanwhile, even less bullish analysts still see significant upside potential in Devon's stock. For example, while Barclays analyst Jeanine Wai recently lowered their price target from $89 a share to $86 in response to Devon's third-quarter results, that's still nearly 40% above the current price. Likewise, even though Citi analyst Scott Gruber also lowered their price target, cutting it from $80 to $78 per share, that's still more than 25% above the current price. This upside potential is why the analyst also kept their buy rating on the stock.

Devon certainly agrees with analysts that its stock trades at an attractive price. The oil company has been steadily repurchasing its shares, using some of the 50% of its free cash flow that it doesn't pay in dividends. It has spent $1.3 billion to retire 4% of its outstanding shares over the past year. It has another $700 million available on its current repurchase authorization to buy back even more of its attractively priced stock.

A big-time dividend with significant upside potential

Devon Energy offers investors substantial income and upside potential. While it's not without risk -- the dividend could keep falling if oil continues to cool off -- analysts believe its compelling valuation and strong balance sheet make it worth the risk. It's an attractive option for investors looking to cash in on the oil market.