These Top Oil Stocks Are Handing Their Investors a Lot of Cash, With Even More Expected to Flow to Shareholders in 2025 and Beyond

Matt DiLallo, The Motley Fool

Mon, Nov 18, 2024, 2:33 AM 4 min read

Returning $9 billion in 2024, and even more in 2025

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.

Buying back its dirt cheap stock

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.

Devon plans to continue returning cash to investors in the coming quarters. Like ConocoPhillips, it will get a boost from a highly accretive acquisition having recently closed its Grayson Mills Energy deal. It's targeting to return up to 70% of its free cash flow to investors, with the near-term emphasis on paying its regular quarterly dividend and repurchasing shares.

CFO Jeff Ritenour stated on the call, "We expect share repurchases in the range of $200 million to $300 million each quarter." It bought back shares at $295 million, the top end of that range, in the third quarter and has repurchased $3 billion since launching its current authorization, retiring nearly 7.5% of its outstanding shares. Given its current valuation, those future repurchases will also be highly accretive.

Cash-producing and cash-returning machines

ConocoPhillips and Devon Energy were already producing more cash than they needed to grow their business, giving them a gusher to return to shareholders via dividends and buybacks. Both oil companies secured needle-moving acquisitions, which will enhance their ability to produce cash in the future. They expect to return even more money to their shareholders, which could give them the fuel to produce strong total returns in the coming years. That makes them compelling oil stocks to buy for the long term.

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Matt DiLallo has positions in ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

These Top Oil Stocks Are Handing Their Investors a Lot of Cash, With Even More Expected to Flow to Shareholders in 2025 and Beyond was originally published by The Motley Fool

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