Analyzing the Long-Term Potential of Chevron and TotalEnergies in the Oil Market
Investors eyeing oil stocks must recognize one key fact: oil prices are notoriously unpredictable. If your goal is to own an oil company for long-term income, you must closely evaluate the underlying business of a dividend-paying stock. Not all oil stocks are created equal. However, Chevron (NYSE: CVX) and TotalEnergies (NYSE: TTE) stand out as companies that could serve as solid investments for decades, providing a reliable income stream. Here’s an exploration of their strengths.
Understanding Chevron and TotalEnergies’ Business Models
The energy sector divides into three main segments: upstream (exploration and production of oil and gas), midstream (transportation and storage), and downstream (refining and selling). It’s important to note that most oil producers also deal in natural gas, blurring the lines of a ‘pure play’ oil company. If you prefer direct exposure to oil and gas, consider focusing on upstream companies.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »
Image source: Getty Images.
While this sector can be thrilling, it also carries the risk associated with fluctuating oil and gas prices. Both upstream and downstream sectors experience extreme volatility. Conversely, midstream operators, which earn fees for moving energy, are generally more stable. As demand for energy often remains steady even during downturns in oil prices, midstream businesses can offer reliable returns.
Investors can mitigate some volatility risk by choosing integrated energy companies like Chevron and TotalEnergies, which have exposure across all segments and often diversify geographically. While oil price fluctuations do affect their financial performance, the impact tends to be less severe compared to pure upstream or downstream firms.
Chevron’s Strong Dividend Performance
If you’re in search of dependable dividends, Chevron and TotalEnergies are top contenders in the industry. However, why should you specifically consider Chevron and/or TotalEnergies?
Chevron appeals particularly to conservative income investors, showcasing a noteworthy 4.1% dividend yield, supported by a track record of annual increases over the past 37 years. Though not the longest streak—ExxonMobil has raised its dividend for 42 years—Exxon’s yield is lower at 3.6%.
Additionally, Chevron boasts one of the strongest balance sheets in the integrated energy sector, maintaining a debt-to-equity ratio below 0.2. This reliable structure enables Chevron to navigate downturns while continuing to invest and distribute dividends. Historically, both Chevron and Exxon pay down their debt during favorable market conditions, positioning them well for future challenges. Given its higher yield, Chevron currently stands out as the better long-term option.
TotalEnergies and the Shift Toward Clean Energy
In contrast, TotalEnergies presents a different kind of investment value. During the initial phase of the COVID-19 pandemic, while other European energy giants like BP and Shell announced shifts to include more renewable energy, TotalEnergies had already begun to diversify its portfolio. BP and Shell cut their dividends amid these changes; TotalEnergies chose to maintain its dividend despite weak oil prices.
As energy markets recovered, TotalEnergies not only upheld its dividend but increased it as well. Conversely, BP and Shell have since rescinded their earlier commitments to clean energy. TotalEnergies, however, has intensified its focus on cleaner energy, reporting a 17% growth in this segment in 2024, amid a challenging oil price environment.
While it may lack a dividend history as extensive as Chevron’s, TotalEnergies serves as a strong hedge for investors looking at the evolving energy landscape, with a dividend yield currently at 5.6%. U.S. investors should consider potential French taxes on this income, although some may be reclaimed when filing taxes.
Higher-yielding energy stocks do exist, but if your aim is to create lasting passive income through oil investments, it’s essential to prioritize both dividend yield and the quality of the underlying companies. At present, Chevron provides an excellent blend of income and financial stability, while TotalEnergies offers a promising approach toward diversification in a cleaner energy future. Both companies represent solid options for income and likely will remain so for many years ahead.
Explore Promising Investment Opportunities
Ever feel like you missed the opportunity to invest in top-performing stocks? If so, you’ll want to stay informed.
Occasionally, our expert analysts issue a strong recommendation for companies poised for growth. If you’re concerned about having missed your chance, now is the ideal time to invest before opportunities slip away. The statistics are compelling:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $360,040!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $46,374!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $570,894!*
We’re currently issuing “Double Down” alerts for three remarkable companies; don’t miss out on this investment opportunity.
Learn more »
*Stock Advisor returns as of February 3, 2025
Reuben Gregg Brewer holds positions in TotalEnergies. The Motley Fool holds positions in and recommends Chevron and advises buying BP. The Motley Fool’s disclosure policy is available for review.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
