This Top Oil Stock Plans to Send Investors $10 Billion in Cash in 2025

ConocoPhillips (NYSE: COP) has transformed its business into a cash-gushing machine. The oil company has invested heavily in developing and expanding its low-cost oil and gas resources, which is allowing it to produce prodigious cash flow and return a lot of money to shareholders.

The oil company sent investors $9.1 billion last year via dividends and share repurchases. Based on current commodity prices, it's aiming to return $10 billion in 2025. Here's a look at what's fueling its ability to return so much money to investors.

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A strong year despite lower commodity prices

ConocoPhillips recently reported its fourth-quarter and full-year results for 2024. The oil giant generated $20.3 billion in cash from operations last year. It used some of that money to fund $12.1 billion in capital expenditures and investments to maintain and grow its low-cost oil and gas resources, which included investing $400 million in bolt-on acquisitions in Alaska during the fourth quarter.

It returned all of its excess free cash flow to shareholders ($9.1 billion). The company repurchased $5.5 billion of its shares and paid $3.6 billion in dividends (including variable return of cash payments). Even with those lavish cash returns, ConocoPhillips ended the year with a strong balance sheet, including $6.4 billion of cash and short-term investments and another $1.1 billion of long-term investments.

ConocoPhillips produced strong cash flow despite lower commodity prices last year. It realized an average of $54.83 per barrel of oil equivalent (BOE), a 6% decline from 2023's average. It was able to partially offset some of that headwind by growing its high-margin production. The company produced an average of nearly 2 million BOE per day last year, a 3% increase from 2023's level after adjusting for the impact of acquisitions and asset sales.

Positioned to produce more cash in 2025

ConocoPhillips has significantly enhanced its ability to produce cash by closing its needle-moving acquisition of Marathon Oil in late November. The deal added more than 2 billion barrels of resources, with an average cost of supply below $30 a barrel. That immediately accretive deal will enhance the company's ability to return money to shareholders in 2025 and beyond.

The oil producer expects to achieve more than $1 billion in integration-related synergies this year. That drives its view that it will only need to spend about $12.9 billion in capital this year to maintain and grow its production. That capital spending level positions the company to produce more than 2.3 million BOE per day in 2025.

The company expects to generate enough excess free cash flow to support $10 billion in cash returns to investors this year. ConocoPhillips has already increased its dividend by 34% by making its most recent variable return-of-cash payment level permanent. It also expects to ramp up its share repurchase pace in 2025. Meanwhile, the company will likely increase its dividend again toward the end of this year, given its target of delivering dividend growth in the top 25% of companies in the S&P 500.

ConocoPhillips also plans to generate some additional cash via non-core asset sales. The company has already agreed to sell about $600 million in non-core U.S. onshore assets, which should close in the first half of this year. Those sales are part of its plans to sell about $2 billion in assets following its Marathon deal and will allow the company to maintain a strong balance sheet so that it can continue returning lots of cash to investors.

A well-oiled, cash-producing (and returning) machine

ConocoPhillips has built an oil company focused on producing cash. That's allowing it to return an increasing amount of money to shareholders through a growing dividend and meaningful share-repurchase program. The company's growing cash flow and cash returns could give it the fuel to produce strong total returns in the coming years, making it a top oil stock to consider holding.

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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.