Oil prices experienced an explosive run-up early last year. West Texas Intermediate crude -- the primary U.S. benchmark oil variety -- surged from $75 a barrel to a peak near $115 a barrel by midsummer. However, oil prices have cooled off considerably since then, falling more than 20% from their pinnacles. West Texas Intermediate was recently selling in the high $70s. 

However, several catalysts could send oil prices back up toward $100 a barrel by this summer. Investors can cash in on that potential bull market run in oil prices by scooping up shares of Devon Energy (DVN -1.95%)Diamondback Energy (FANG -2.15%), and Pioneer Natural Resources (PXD). All three oil stocks pay high-yielding dividends driven by their oil-fueled cash flows.

An enticing payout with upside potential

Devon Energy launched the oil patch's first fixed-plus-variable dividend framework when it closed its merger-of-equals transaction with WPX Energy in 2021. The company pays a fixed base dividend that it aims to steadily increase and sustain even at lower oil prices. In addition, it distributes 50% of its post-base-dividend free cash flow to shareholders via its variable dividend.

That variable dividend surged along with oil prices and Devon's free cash flow during the first half of 2022:

A chart showing Devon Energy's dividend payments each quarter.

Data source: Devon Energy. Chart by the author.

However, the variable payout has fallen along with oil prices and Devon's cash flow in recent quarters. 

It could continue to fall early this year because of lower oil prices and increased capital spending. For example, at $80 West Texas Intermediate, Devon trades at a free-cash-flow yield of about 8%. With half its free cash flow going to pay dividends, Devon's forward dividend yield would be around 4% this year. On the one hand, that's attractive compared to the S&P 500's sub-2% dividend yield. On the other hand, it's well below Devon's current annualized rate of 6.3% based on its recent stock price and last quarterly dividend payment.

Devon would produce substantially more free cash flow if oil surged back toward $100 a barrel. That would give it more money to pay dividends.

The potential to pay another dividend gusher this year

Diamondback Energy also pays a fixed-plus-variable dividend. However, it doesn't have a policy of paying a set percentage of its cash flow via the variable dividend. Instead, it returns 75% of its free cash flow to shareholders through a combination of the base dividend, variable dividend, and share repurchases. That allows the company to allocate more capital toward stock buybacks when the shares are trading at a compelling valuation.

The company most recently declared a fixed-plus-variable dividend payment of $2.95 per share ($0.80 per share fixed and $2.15 per share variable). That gave it an 8.8% dividend yield. 

Diamondback Energy could continue paying significant dividends this year. At $80 a barrel, the company would produce more than $3.3 billion of free cash flow. It could pay a dividend that yielded as much as 10% if it allocated 100% of its cash returns to the variable dividend instead of share repurchases. Meanwhile, it could produce more than $4.5 billion of free cash if oil averaged $100. It could offer a dividend yield of as much as 13.6% at that price point, assuming it didn't repurchase any shares.

Another massive dividend gusher awaits

Pioneer Natural Resources also uses a fixed-plus-variable dividend framework. It pays out 75% of its post-base-dividend free cash flow to shareholders via variable dividends.

Because of that, it now offers a monster yield. The company's annualized dividend yield was near 11% at its most recent quarterly payment level ($5.58 per share) and stock price.

Pioneer Natural Resources estimates it could pay about $20 per share in dividends this year based on the cash flows it can produce at $80 oil. That implies a dividend yield of about 9.5% at recent share prices. Meanwhile, it could pay around $28 in dividends this year if oil averages $100 a barrel. That would be a more than 13% dividend yield. 

High-octane income streams

Devon Energy, Diamondback Energy, and Pioneer Natural Resources pay oil-fueled dividends. While their payout ratios vary, all three offer high-yielding dividends with significant upside potential if oil prices heat up this summer. Because of that, they're great ways to cash in on a potential bull market in crude oil.