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Devon Energy  (DVN 6.33% ) launched a unique dividend framework last year. The oil company initiated an industry-first fixed-plus-variable dividend policy. It complements its base quarterly dividend with variable payments of up to 50% of its excess cash flow each quarter.

As a result, Devon Energy is becoming a massive  passive income  producer with its free cash flow surging thanks to higher oil prices. The company recently increased its dividend once again, hitting a new record high. Given the current situation in the oil market, Devon could continue paying big dividends in the coming quarters.

Devon Energy recently reported its first-quarter results. The  oil company  produced $1.8 billion of operating cash flows, up 14% from the fourth quarter. Meanwhile, it generated a record $1.3 billion of free cash flow, an 18% sequential increase. 

The oil company used its cash flow to fund its capital expenditures and make its $0.16-per-share quarterly dividend payment . Even after covering those two cash outlays, the company had more than $1.3 billion in remaining free cash flow. It paid out half of that money via its variable dividend, bringing its total dividend outlay for the quarter to a record $1.27 per share, a 27% increase from its last payment.

Devon retained some of the remaining money to strengthen its balance sheet, growing its cash balance by $354 million to $2.6 billion. Meanwhile, it returned another $891 million to shareholders by repurchasing 19.1 million shares. Since launching its current repurchase program, the company has retired 3% of its outstanding shares.

Devon Energy has steadily returned more cash to its investors each quarter over the past year. Overall, it has grown its fixed-plus-variable dividend payout by an eye-popping 270%. It has increased the total outlay from $0.34 per share during the first quarter of 2021 to $1.27 per share in the first quarter of 2022. The company boosted its fixed base dividend by 45% while paying significantly more via the variable dividend.

Given where oil prices are these days, Devon expects to continue returning a gusher of cash to investors this year. The company sees the potential for paying out more than $4.75 per share in dividends in 2022, more than double the $1.97 per share it paid out last year. At its current stock price, that payout level implies a  dividend yield  of around 8%. That's six times higher than the  S&P 500 's dividend yield.

On top of the dividend, Devon Energy is returning additional cash to shareholders via its share repurchase program. The company recently increased its authorization by 25%, boosting it to $2 billion. That's enough money to retire 5% of the company's outstanding shares. By reducing the share count, the company will pay future variable dividends across fewer shares, which should increase the per-share payments.  

Devon Energy gives investors a unique opportunity to cash in on higher oil prices. The company's dividend framework distributes half its excess cash to shareholders each quarter. That has allowed investors to collect a gusher of dividend payments over the past year. That seems likely to continue in the near term since oil prices should remain elevated due to supply constraints made worse by Russia's invasion of Ukraine. Because of that, Devon Energy is an intriguing option for investors seeking a high-octane passive income stream.

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