If you’re looking at oil and natural gas stocks, there’s one thing you should expect — volatility. Oil prices are known to fluctuate dramatically, and often quickly. Any investor who invests his money, whether it is $100, $1,000, or $100,000, should be prepared for periods of weakness because they will eventually arrive. This is why you should buy an industry leader such as… Chevron (NYSE: CFX) It is probably the best option for most investors. Here’s what you need to know.
There are companies that explore for oil and natural gas, which form the top of the oil industry. There are companies that transport oil, natural gas, and the products into which they are converted, via energy infrastructure assets such as Pipelines Which constitutes the middle part of the energy sector. There are companies that refine and process oil and natural gas and turn them into things like gasoline and chemicals in the downstream sector of the industry.
Then there are the companies that do it all, with assets spread across the entire energy landscape. These are integrated Energy companiesIt is the group that includes Chevron. The reason for this is that each different sector of the energy industry operates differently at different times. The best example of this is that lower oil prices will hurt upstream businesses but often benefit downstream businesses, which use oil as an input. For most investors, owning an integrated energy company would be the best option in the energy sector.
Chevron competes with companies such as: Exxon Mobil, baby, coincidenceand Total energies. However, if you’re looking for an integrated oil company, Chevron stands out in some important ways.
Shell and BP both cut their dividends during the height of the coronavirus pandemic. Although its yields are high, these dividend cuts are likely to upset income investors looking for reliable dividend stocks. TotalEnergies has not reduced its dividend, but has increasingly invested in electricity and renewable energy assets. Although it is changing with the world around it, and as clean energy options become increasingly important, it is not a stripped-down energy company anymore. That leaves Exxon and Chevron, both of which are sticking to their oil roots. Both have a long history of increasing their profits year after year.
To be fair, Exxon’s 42-year streak of annual dividend increases is better than Chevron’s 37-year streak. But both lines are impressive when we take into account the huge fluctuations in oil and natural gas prices that have occurred over the past three decades. So, in effect, Chevron stands on equal footing with Exxon on this front. But it outperforms Exxon in two other important areas.
For starters, Chevron’s dividend yield is 4.3%. Exxon yields 3.2%. The average energy stock yield is 3.4%. If you’re looking for a high-yielding oil stock, Exxon appears to be holding back a bit while Chevron is attractive.
Then there is the balance sheet, which is essentially the financial basis from which dividends are paid. Chevron’s debt-to-equity ratio is lower, and therefore better, than any of its closest peers. Exxon’s ratio is close, but when you add in Chevron’s high yield, the clear winner is still Chevron. Note that the ability to gain additional leverage during industrial downturns is what has allowed both Chevron and Exxon to shore up their profits and businesses through inevitable energy weak spots.
When you add it all up, dividend investors looking for a reliable, high-yielding oil stock would likely choose Chevron. There are reasons you might want to own another energy company, but if you’re simply trying to find the best overall pick, Chevron stands out from the crowd. This is as true if you have $1,000, as it is if you have $100,000 to invest today.
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Robin Gregg Brewer He has positions at TotalEnergies. The Motley Fool has positions in and recommends BP and Chevron. The Motley Fool has Disclosure policy.
The best high-yielding oil stocks to invest $1,000 in now Originally published by The Motley Fool