What are the prerequisites for the growth of a dividend yield? A strong business, growing revenue, and increasing cash flows ... or how about a reduction in the number of outstanding shares? Share buybacks will also lead to a growth in dividend yield even if the dividend remains the same on the cash basis. And this is what exactly Occidental Petroleum (NYSE:OXY) is doing.

Don't expect big growth from Occidental Petroleum
Occidental Petroleum is not in a phase of rapid growth, which is typical for a company of its size. In fact, Occidental Petroleum's first-quarter production dropped from 763,000 barrels of oil equivalent per day (boe/d) in 2013 to 745,000 boe/d in 2014. But the company's revenue increased, helped by higher oil prices. In the second quarter, Occidental Petroleum expects to grow its oil production between 7,000 boe/d and 9,000 boe/d.

Similar trends could be seen while looking at Suncor Energy (NYSE:SU). Suncor Energy's first-quarter production dropped from 596,000 boe/d in 2013 to 545,300 boe/d in 2014. Just like in Occidental Petroleum's case, assets divestments played a key role in Suncor Energy's production drop. Going forward, Suncor Energy expects to produce 525,000-570,000 boe/d in 2014.

Achievement of the high end of this guidance will depend on the performance of the company's oil sands segment, which is expected to grow 15% this year. But not everything is that rosy for some oil sands projects. For example, Total (NYSE:TOT) has recently suspended work at Joslyn oil sands mine in Alberta, as high costs put project economics under question. Total owns a 38.25% stake in this project, while Suncor Energy holds a 36.75% stake and Occidental Petroleum owns a 15% stake. Importantly, the halt of this project does not influence Occidental Petroleum production numbers in the near term.

Divestments pave the way for share buyback
Occidental Petroleum was active on the share buyback front in the first quarter, spending $945 million on this purpose. In comparison, the company spent $515 million on dividend payments during the same time period. The good news is that Occidental Petroleum will continue repurchasing its shares and has the means to do so. The company plans to separate its Californian assets into a company called California Resources Corporation in the fourth quarter of 2014. Through dividends that this new company will pay to Occidental Petroleum, the latter expects to buy back 40 million-50 million of its outstanding shares.

In addition, Occidental Petroleum continues to monetize its remaining interest in the Plains All American Pipeline (NYSE:PAA). What's more, the company has 26.5 million shares left for repurchase in the current authorized buyback program. Together, these repurchases could reduce current share count by up to 100 million shares.

Bottom line
Occidental Petroleum's dividend yield will likely increase even if the company does not lift the amount of cash distributed to shareholders. During the first quarter earnings call, the company stated that it had no need to do any sort of large-scale, major acquisitions. This highlights the company's reluctance to spend more than necessary and its focus on returning cash to shareholders.