Diamondback Energy (NASDAQ: FANG) is generating lots of cash these days. At $70 a barrel -- slightly below the current price point -- the oil company can produce over $2.7 billion in free cash flow (FCF) this year. It aims to return about 75% of that money to shareholders via a combination of its base dividend, variable dividend payments, and share repurchases.

While it had favored returning excess cash to shareholders by paying variable dividends last year, the company has firmly shifted its capital return strategy in favor of share repurchases this year. The increase in share repurchases is due to its strong conviction that the current stock price represents an excellent opportunity.

Shares of Diamondback Energy have fallen nearly 20% from their 52-week high and were recently around $135 a piece. That's a dirt-cheap price based on the cash flows it can produce. Diamondback Energy could generate about $15 of FCF per share if oil averages around $70 a barrel this year. That gives it a valuation of around nine times FCF or an FCF yield of about 11%. For perspective, that's more than 50% below broader market indexes, as the S 500 trades at about a 5% FCF yield and the Nasdaq 100 at around 4%.

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Source Fool.com