Oil prices have bounced around quite a bit this year. West Texas Intermediate, the primary U.S. oil price benchmark, has traded as high as the mid-$80s and as low as the mid-$60s. While that’s a wide range, it’s a lucrative band for most producers.
Many oil companies are generating a lot more cash than they need. That’s enabling them to return a growing gusher of money to their shareholders. Here’s a look at some oil stocks sending barrels of cash to their investors.
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ConocoPhillips (NYSE: COP) is a cash-producing machine. The oil company generated over $4.7 billion in cash flow from operations in the third quarter alone, easily covering the $2.9 billion in capital needed to maintain and grow its business. That enabled the company to return $2.1 billion in cash to its shareholders through repurchases and dividends during the period.
The oil giant is on track to return $9 billion in cash this year. It could send investors even more next year. It has a cash-rich balance sheet, with $7.1 billion of cash and short-term investments and another $1 billion of long-term investments. In addition, it’s on track to close its highly accretive acquisition of Marathon Oil this year. The company now expects the deal to significantly exceed the annual cost savings of more than $500 million it initially expected to achieve.
ConocoPhillips has already increased its dividend by 34% this year. It intends to deliver dividend growth in the top 25% of companies in the S&P 500 in the future. In addition, it plans to ramp up its share repurchase rate from its current annual pace of around $5 billion to $7 billion next year and buy back over $20 billion of its stock in the first three years of closing the Marathon deal. The combination of income growth and repurchases could give ConocoPhillips the fuel to produce strong total returns in the coming years.
Devon Energy (NYSE: DVN) also produces lots of cash, much of which it’s returning to shareholders. The company generated $1.7 billion of operating cash flow in the third quarter and $786 million of free cash flow after capital expenses. Devon returned $431 million to investors through dividends and share repurchases.
The company has “leaned in heavier on our share repurchase program,” stated CEO Rick Muncrief on the third-quarter call, opting against paying variable dividends. That’s because “we continue to think reinvesting in our company at today’s prices is the right thing to do for shareholders.” Devon trades at a free cash flow yield of 9% at $70 oil, which compares with a low-single-digit yield for the broader market.
