• Marathon Oil is an attractive oil and gas play with a 1.21% dividend yield and a forward P/E below 10x.
• Analysts forecast 88.5% higher earnings this year, along with significant FCF growth.
• It has cut the share count by 8% in over four months, implying a 14.2% buyback yield and a 15.4% total yield — making MRO stock very attractive to value investors.

Marathon Oil Corporation (NYSE:MRO) is a very attractive total yield (i.e., dividend yield plus buyback yield) oil and gas exploration and production play. Most of its production comes from the Eagle Ford Basin in Texas and the Bakken area in North Dakota and Montana. Value investors are attracted to it due to its low price-to-earnings (P/E) ratio, growing dividend, huge free cash flow (FCF), huge buybacks, and quarterly rising dividend payments. The bottom line is that MRO stock is an attractive dividend and buyback yield company for investors.

Marathon Oil’s Standout Features

For example, Marathon Oil says it “returned over 70% of fourth quarter cash flow from operations to equity holders (equates to over 90% of free cash flow generation).”

This includes buying back $1 billion of its shares since October, reducing its share count by 8%. That works out to an annualized buyback yield of about 14.2%. The reason is its market capitalization is $16.88 billion at the time of writing, so $1 billion is 5.92% of that amount. Since this was done over 5 months, we can multiply that by 2.4x (i.e., 12/5 months) on an annual basis. That gives MRO stock a 14.2% total yield.

Moreover, Marathon Oil produced $1,149 million of net cash provided by operating activities in the fourth quarter (Q4). After $251 million in capex spending, its FCF in Q4 was $898 million. That works out to an annualized rate of almost $3.6 billion. That is well over the $2.24  billion it produced last year in FCF, and approximately covers the cost of its buybacks.

In addition, Marathon has been raising its quarterly dividends by 1 cent each quarter. As of Jan. 26, its last declaration date, the quarterly dividend was at 7 cents, up from 6 cents the prior quarter and 5 cents before that. Investors can probably expect that on or around Apr. 26 it could raise the dividend again. After all, as of August 2015, it used to pay a 20 cent quarterly dividend. The company may be slowly trying to get back to that level.

As of Mar. 18, with the price of MRO stock at $23.08, the 28 cents annualized dividend per share works out an annualized yield of 1.21%.

Where This Leaves Investors in MRO Stock

As long as oil and gas prices stay high, Marathon will produce a huge amount of FCF. A war in Europe is likely to keep prices high, but rising inflation and slowing economies, as a result, could push energy prices lower.

So, investors should take some caution about the standout value features of Marathon Oil. As always, there is no guarantee. There is no recurring price in the energy business.

That said, the company has hedges known as “three-way collars.” For example, these options contracts are listed on page 15 of its earnings release. It shows that the company can profitably sell about 37% of its crude oil production in prices between the mid-$50s and just below $100 per barrel. The remainder of its production sells at the spot market rate. That helps provide some assurance that the company can realize at least almost 40% of its production at good prices.

The bottom line here is that MRO stock is a calculated risk for value investors. The company is dramatically reducing its share count. In the long run, this will allow it to increase the dividend per share. Meanwhile, the dividend yield pays investors while they wait for the stock’s value to rise.

By combining its 1.2% dividend yield with its 14.2% buyback yield, investors can expect to make a total yield of 15.4% this year from MRO stock.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.