If there’s one thing investors can expect when investing their money in the energy sector, it’s volatility. Oil and natural gas, as commodities, have a long history of rapid and often dramatic price movements.
For this reason, investors looking at this sector should consider sticking to the biggest and best companies, which generally means integrated energy giants like Chevron (NYSE: CFX) and Total energies (NYSE: T). That’s why these two stocks stand out today for investors looking for high returns.
There are companies that have longer streaks of annual dividend increases, but you have to give credit where it’s due. Chevron’s 37th consecutive annual dividend increase is impressive, given the highly volatile nature of the industry in which it operates. Stocks can be obtained for less than $500 apiece, and Dividend yield That’s a very respectable 4.1%. For comparison, Standard & Poor’s 500 It yields just 1.2%, and the average energy stock yields just 3.1%.
Supporting this above average return is Energy company With a widely diversified portfolio, spanning the upstream (energy production), midstream (pipelines), and downstream (chemicals and refining) sectors of the industry. Moreover, its portfolio of assets is spread across the world.
Together, this diversification helps smooth out the peaks and valleys that energy prices experience on a regular basis. Chevron also has one of the strongest balance sheets, with a debt-to-equity ratio of 0.17 times. This would be low for any company, but more importantly it gives management room to leverage leverage to finance the business (and profits) during downturns in the energy industry.
Chevron is not firing on all cylinders right now. It is having trouble closing its acquisition Hesswhich has business relationships with some of Chevron’s major competitors. While production rose 7% year-on-year in the third quarter of 2024, return on capital employed (a key industry performance measure) fell slightly, and lower energy prices squeezed top and bottom lines.
But that’s just par for the course in the energy industry, with Chevron adding a little leverage so it can keep business as usual. If history is any guide, Chevron will weather the turmoil it faces, continue to reward investors with increasing profits, and expand its business over time.
If you’re looking for a high-yielding energy stock that can weather the sector’s ups and downs, Chevron is likely one of the best options out there. But what if you look to the future and believe that clean energy will play an increasingly important role in the global energy market? Chevron isn’t investing that much in this area, so it may not be for you.
However, TotalEnergies is investing in the sector, with its Integrated Energy division (where its clean energy investments are located) accounting for a significant 10% of adjusted sector operating income through the first nine months of 2024.
It’s actually not unusual for TotalEnergies to invest in things like solar and wind. their European peers baby and coincidence I’ve been doing the same thing. But both of them reduced their profits when they announced their intention to shift towards clean energy. They have since backed away from their clean energy commitments somewhat.
TotalEnergies did not cut its dividend or back away from its commitment to clean energy. If anything, the company has been accelerating its plans.
Although about 90% of operating income is still tied to the oil and gas sectors, TotalEnergies is still very much an energy company. But for investors looking to hedge their energy bets a bit, given that clean energy is slowly replacing dirtier energy sources like oil, TotalEnergies is likely the better choice among the integrated oil majors. It comes with a yield of 5.8%. (US investors will have to pay foreign taxes on this income, but will be able to claim a portion of it by April 15.) The company’s stock price is even lower than Chevron’s stock price.
Given the volatile nature of oil prices, most investors should not try to swing this sector, or worse, try to predict which direction commodity prices will take. It is much better to have well-managed companies that are strong enough to withstand industry fluctuations. Both Chevron and TotalEnergies have proven they can do this. One of the main differences between them now is that TotalEnergies offers a bit of a clean energy hedge, if that’s something you want to have.
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Robin Gregg Brewer He has positions at TotalEnergies. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends BP. The Motley Fool has Disclosure policy.
2 no-brainer high-output energy giants to buy now for under $500 Originally published by The Motley Fool