Diamondback Energy (NASDAQ: FANG) is producing a gusher of free cash flow this year. The oil company is on pace to generate more than $4 billion of free cash flow, significantly more than the $2.4 billion it produced in 2021. It's returning the lion's share of that windfall to shareholders.

A large portion of that return has come through dividends. Diamondback Energy paid out $2.26 per share in dividends ($0.75 base plus $1.51 variable) during the third quarter. That gives it an implied annualized dividend yield of more than 6% at the current share price, which is several times above the S&P 500's 1.7% dividend yield. However, that dividend payment was lower than the second quarter's outlay because Diamondback chose to use more of its excess cash to repurchase stock. This decision suggests it believes its shares trade at a bargain price. 

Diamondback Energy enhanced its capital return framework earlier this year. The oil producer committed to returning at least 75% of its free cash flow to shareholders each quarter, up from its prior pledge of 50%. 

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Source Fool.com