The price of oil might have slumped below $80 recently but remains more than 10% higher for the year. With Energy still one of the top-performing sectors in 2024, we turn our attention to how some of the constituent companies are using this favorable landscape to return excess free cash flow to shareholders through dividends.

The Energy sector's volatile nature, defined by sudden shifts in fortunes, is well-known. While investments in oil and natural gas have always been prone to price fluctuations, recent years have seen a notable increase in uncertainty, particularly post-COVID-19.

In such an unpredictable market, a dividend raise acts as a vote of confidence from management. Typically, it signals optimism about the company's future, as increased dividends are often supported by anticipated cash flows. This move essentially reflects management's belief in the ability of future cash flows to cover the higher dividend payouts.

4 Companies Enhancing Their Payouts

Now, let's examine four energy companies — Murphy USA (MUSA Quick QuoteMUSA - Free Report) , Targa Resources (TRGP Quick QuoteTRGP - Free Report) , Cenovus Energy (CVE Quick QuoteCVE - Free Report) and Phillips 66 (PSX Quick QuotePSX - Free Report) — that recently raised their dividends.

Murphy USA is a leading independent retailer of motor fuel and convenience merchandise in the United States. The proximity of Murphy USA’s fuel stations to Walmart supercenters helps the company leverage the strong and consistent traffic that these stores attract. MUSA’s acquisition of QuickChek Corporation — a family-owned food and beverage chain — has helped improve its offerings significantly.

MUSA said on May 10 that it will pay out a cash dividend of 44 cents per share of record on May 20. The Zacks Rank #3 (Hold) company’s dividend represents a 4.8% increase in its quarterly dividend rate, providing an annualized dividend of $1.76 per share.

While stock buyback continues to be MUSA’s preferred tool to distribute cash, the company’s policy dictates that it plows back around 4% of its capital in paying dividends. Agreed, the company’s current dividend yield is meager at less than 1%, but it is well protected with a payout ratio of just 7. (Check Murphy USA's dividend history here)

Next up is Targa Resources. It is a leading provider of integrated midstream services in North America. The Houston, TX-based operator primarily derives its revenues from gathering, compressing, treating, processing and selling natural gas. Targa Resources, with a Zacks Rank of 3, also provides services associated with natural gas liquids (“NGL”), including those to liquefied petroleum gas (“LPG”) exporters, and crude oil.

Last month, TRGP increased the quarterly dividend by 50%. The company will pay a dividend of 75 cents per share against 50 cents last quarter. Calculating a 2.7% annualized yield, this payout increase comes into effect with the one to be paid on May 15.

Targa Resources’ current dividend yield might not be the best going around, but it is comfortably ahead of the S&P 500’s 1.3%  and seems more than sustainable at a payout ratio of around 41. In fact, this also leaves enough scope for future hikes. (Check Targa Resources' dividend history here)

Then, there is Cenovus Energy. The Canada-based operator is a leading integrated energy firm. Starting from pumping out oil from its oil sands projects in Canada, the company’s operations comprise marketing the produced oil, natural gas and natural gas liquids. Cenovus’ entire operation of oil and gas production is concentrated in Canada, within the provinces of Alberta and British Columbia.

CVE proposed a quarterly dividend of 18 Canadian cents, taking the full-year payout to 72 Canadian cents, up 29% from the previous dividend. The new dividend, which offers a yield of 2.6%, will be paid to stockholders of record on Jun 14.

In addition to the regular dividend, the Zacks Rank #2 (Buy) company declared a special dividend of 13.5 Canadian cents per share during its first quarter release. Cenovus Energy's attractive dividend policy reflects its robust financial performance, with CVE experiencing a significant increase in operating income and adjusted funds flow. Cenovus plans to return 50% of excess free cash flow to its shareholders, with the potential for full distribution once debt targets are met. (Check Cenovus Energy's dividend history here)

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Finally, we have Phillips 66. Another major refiner in terms of size, efficiency and strength, Phillips 66 buys, sells and refines crude oil and other feedstocks at its refineries. PSX, with a throughput capacity of 2 million barrels per day, owns an interest in 12 refineries in the United States and Europe. Moreover, it owns 7,110 branded U.S. outlets and 1,700 international ones.

In April, PSX increased the quarterly dividend by 10% from $1.05 to $1.15. This payout increase comes into effect with the dividend to be recorded on May 20. At the current share price, Phillips 66 offers a dividend yield of 3.2%.

Phillips 66 has witnessed a 16% compound annual growth rate in dividends since its formation in 2012. In fact, the #3 Ranked leading and diversified refiner has a target of returning $13 billion to $15 billion to its investors via both dividend and share repurchases from July 2022 to 2024. (Check Phillips 66's dividend history here)