Devon Energy's (DVN 1.51%) fortunes rise and fall with oil prices. The oil company's stock price initially skyrocketed in 2022, surging more than 75% as crude prices rallied following Russia's invasion of Ukraine. However, Devon's shares have cooled off along with crude prices in recent months and currently sit about 40% below their 52-week high. 

The company's management team believes the sell-off has the stock trading at a very attractive price. That was evident from their comments on the first-quarter earnings call. Here's what the company is doing to take advantage of this opportunity.

The other part of Devon Energy's capital return strategy

Devon Energy launched a unique capital return strategy in 2021. The company set the oil industry's first fixed-plus-variable dividend framework. It pays a fixed base dividend that it aims to increase steadily. In addition, Devon pays out up to 50% of its post-base-dividend free cash flow to shareholders via variable dividends.

That payout has become a key focus of investors over the past year. It surged with oil prices early last year before steadily declining in recent quarters. Despite that variability, CEO Rick Muncrief noted on the first-quarter call that "This consistent formulaic approach which began almost three years ago has allowed Devon to offer one of the highest yields in the entire S&P 500 since its groundbreaking implementation."

However, the dividend is only one side of the company's capital return strategy. The company also repurchases shares with a portion of its remaining free cash flow. Muncrief stated on the call, "The total cash payout from these shareholder-friendly initiatives reached an annualized rate of around a 12% yield in the first quarter, which significantly exceeds the available opportunities in other sectors of the market."

A slide showing Devon Energy's total cash payout yield versus other stock market sectors.

Image source: Devon Energy.

As that slide pointed out, Devon delivered a superior cash yield, driven nearly equally by dividend payments and share repurchases.

Capitalizing on the opportunity

While the market has focused on Devon Energy's dividend, its CEO didn't want investors to lose sight of the share repurchase program. He stated, "We continue to see attractive value in repurchasing our shares, which we believe traded a significant discount to our intrinsic value." That's leading the company and its management team to take action.

Muncrief noted on the call:

To capitalize on this compelling opportunity, we made substantial progress advancing our buyback program by repurchasing $692 million of shares year to date. In addition to our corporate buyback activity, multiple members of our management team, myself included, have also demonstrated their conviction in Devon's value proposition by purchasing stock in the open market over the past few months. With our Board of Directors approving the upsizing of the capacity of our repurchase program by 50% up to $3 billion, the company is well equipped to be active buyers of our stock over the course of the year. 

That's the third increase in the company's share repurchase program since its inception. Given how cheap the stock is these days, it has enough capacity to retire 9% of its outstanding shares.

The company's meaningful buyback is helping drive faster production growth on a per-share basis. Devon expects its total output to rise 7% at the mid-point of its guidance range this year. After accounting for the impact of its share repurchase program, it sees production growing by 9% on a per-share basis. The company's variable dividend will also get a buyback-driven boost. It will make the cash flow-based payment across fewer shares in the future, increasing the per-share rate.

The buyback is an important value enhancer

With most investors focusing on Devon's variable dividend, it's easy to miss the other part of the company's capital return strategy. The company believes repurchasing shares enhances shareholder value, especially now, given the stock price slide. That's leading the company to capitalize on the opportunity by repurchasing more shares, which will boost its per-share growth rate and variable dividend in the future.