If you’re looking at a company that produces oil, you’ll have to accept some volatility. The energy sector goes through booms and busts, and there’s nothing that can be done about it, given that oil is a commodity. However, not all oil companies are the same. Chevron (NYSE: CVX) is probably one of the smartest ways to invest in the energy sector, and it has a very attractive 4% dividend yield, too.
One of the core reasons to like Chevron is its vertical integration, which means it owns assets across the upstream (energy production), midstream (pipelines), and downstream (chemicals and refining) segments of the broader energy sector. Each industry segment operates a little differently through the energy cycle, so having all three in one business helps to soften the revenue and earnings effect of commodity price swings.
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That said, Chevron is not the only vertically integrated energy company. It competes with a number of other large, integrated energy companies, like ExxonMobil (NYSE: XOM), Shell (NYSE: SHEL), BP (NYSE: BP), and TotalEnergies (NYSE: TTE). What sets it apart is its combination of yield, financial strength, and dividend consistency.
Chevron’s streak of annual dividend increases is 38 years long, second only to ExxonMobil’s 43 years. However, ExxonMobil’s dividend yield is 2.9%, more than a percentage point lower than that of Chevron. Most investors will likely prefer the higher yield, given the similarly strong dividend histories.
Shell and BP both cut their dividends in 2020 during the energy downturn that accompanied the coronavirus pandemic. While TotalEnergies didn’t cut its dividend at that time, its dividend history isn’t quite as consistent as Chevron’s. And TotalEnergies has materially more debt on its balance sheet. In fact, Chevron’s leverage is lower than that of all its peers, except ExxonMobil.
This is notable because low leverage gives Chevron the wherewithal to add debt during energy downturns, enabling it to continue supporting its business and dividend. When oil prices recover, as they always have historically, it pays down debt in preparation for the next downturn.
All in all, you could buy ExxonMobil or Chevron, given how similar they are. However, it’s probably a smarter move to buy higher-yielding Chevron, given its more attractive combination of yield, dividend reliability, and financial strength.
