These 3 Top Oil Dividend Stocks Just Gave Their Investors Another Raise

The oil industry can be a good place to collect some dividend income. Many oil companies produce a lot of cash, giving them money to drill more wells and return cash to shareholders via dividends and stock buybacks.

Several oil stocks recently raised their dividends. Three notable ones were Devon Energy (NYSE: DVN), Occidental Petroleum (NYSE: OXY), and Chevron (NYSE: CVX). Here's a look at their dividends and which is the best oil dividend stock to buy.

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Continuing to raise the income floor

Devon Energy is hiking its quarterly fixed dividend rate by 9% to $0.24 per share ($0.96 annually). That gives the oil stock a 2.5% dividend yield at its recent price of around $38, more than double the S&P 500's dividend yield of 1.2%. This raise continues the steady growth in the fixed portion of the company's dividend since it reset the payment in 2016 to a quarterly rate of $0.06 per share following a significant slump in oil prices. Devon's dividend is now back to its prior peak.

In addition to that fixed quarterly rate, Devon had been paying an additional variable dividend each quarter since its 2021 merger of equals with WPX Energy. That payment reached a quarterly peak of $1.55 per share in 2022, following a spike in oil prices after Russia invaded Ukraine.

However, Devon has opted against paying variable dividends in recent quarters to allocate more of its free cash flow toward buying back its shares. Last year, the company bought back $1.1 billion in stock, part of the $2 billion in cash it returned to shareholders. With its stock price currently more than 30% below its 52-week high, Devon will likely continue to prioritize share repurchases over additional variable dividend payments.

Growing its dividend while repaying debt

Occidental Petroleum is also increasing its quarterly dividend by 9% to $0.24 per share. With its stock price at $50 a share, Occidental's new dividend level pushed its yield to 1.9%.

The oil company has also been steadily rebuilding its dividend following a reset. Occidental slashed its quarterly dividend from $0.79 per share all the way down to $0.01 per share in 2020 due to the pandemic-driven crash in oil prices. It made that move to conserve cash so that it could repay debt following its ill-timed, debt-funded acquisition of Anadarko Petroleum in 2019.

Occidental Petroleum has been rebuilding its dividend while strengthening its balance sheet, which took another hit last year following its debt-funded deal for CrownRock. However, the company has made rapid progress in repaying debt following that deal, hitting its near-term target of retiring $4.5 billion in debt seven months ahead of schedule. The company recently agreed to sell another $1.2 billion of assets, which will give it the cash to repay its remaining 2025 debt maturities. As debt continues to come down, Occidental will have more money to return to shareholders via a growing dividend and share repurchases (which are currently on hold).

A high-octane dividend

Chevron recently announced that it's increasing its quarterly dividend by another 5% to $1.71 per share ($6.84 annually). With its stock price around $157, Chevron's dividend yields a hefty 4.4%.

That dividend increase marked the 38th consecutive year Chevron has raised its dividend. As this year's hike makes clear, Chevron isn't just giving investors a modest raise to keep its streak alive. "Over the past five years we have grown our dividend faster than the S&P 500 and nearly double the rate of our closest peer," commented CFO Eimear Bonner on the company's fourth-quarter earnings conference call.

Chevron supports its higher-yielding dividend with a very strong financial profile. The company generated $15 billion in free cash flow last year, easily covering its dividend outlay of $11.8 billion. Chevron has such a strong financial profile that it returned a record $27 billion in cash to shareholders last year through dividends and repurchases ($15.2 billion). That brought its total to $75 billion over the past three years.

Even with those high cash returns, Chevron ended the year with a strong balance sheet. Its leverage ratio is 10.4%, well below its 20% to 25% target range. Meanwhile, the company expects to add $10 billion to its annual free cash flow by 2026, fueled by expansion projects and cost-reduction efforts. Because of that, it should have plenty of fuel to continue increasing its high-yielding dividend.

A well-oiled dividend-paying machine

Devon Energy, Occidental Petroleum, and Chevron recently increased their dividends. The oil stock trio should be able to continue raising their payouts in the future as they generate cash to execute their strategies. Because of that, all three are solid options for investors seeking an oil-fueled dividend.

However, Chevron stands out as the best dividend stock in this trio. It pays a higher-yielding dividend that has steadily grown over the decades. Given its strong financial profile and expected surge in free cash flow, it should have plenty of fuel to continue increasing its high-yielding dividend.

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Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.