Comparing Energy Giants: Chevron vs. Enterprise Products Partners

Chevron (NYSE: CVX) stands out as a well-managed energy company offering an appealing 4.3% dividend yield, backed by 37 consecutive years of annual dividend increases. If you’re in search of a diversified energy stock with significant yield, it’s worth considering. However, for those prioritizing yield over diversification, Enterprise Products Partners (NYSE: EPD) may be a better fit. Here’s why.

Understanding Chevron’s Strengths

Chevron is recognized as an integrated energy major, a title reflecting its robust size and industry stature. With a market cap of $270 billion, it ranks among the largest energy companies globally. Its worldwide operations provide considerable geographic diversification. However, Chevron’s definition of integration extends beyond just location.

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Being integrated means operating across three crucial areas of energy: production (upstream), transportation (midstream), and refining/chemicals (downstream). Chevron excels in all these areas. For investors seeking reliable dividends while gaining energy exposure, Chevron is an excellent choice. However, the volatility in its upstream and downstream operations—closely linked to commodity prices—can lead to significant variations in financial results. This fluctuation may deter conservative investors looking for stability over the long term.

Spotlight on Enterprise Products Partners

For those favoring high yield, Enterprise Products Partners presents a compelling option. It boasts an impressive 7.2% yield. This master limited partnership (MLP) primarily operates within the midstream sector, owning essential transportation infrastructure such as pipelines that facilitate the movement of oil and natural gas globally.

Enterprise’s business model centers on charging fees for the usage of its energy infrastructure. In contrast to Chevron, which is impacted by commodity prices, Enterprise benefits from steady energy demand. This reliability enables Enterprise to consistently increase its distribution—a remarkable achievement for 26 consecutive years. Its distributable cash flow exceeds its distribution by 1.7 times, offering significant protection against potential downturns.

But why does Enterprise offer such a high yield? The answer lies in growth expectations. Historical data suggests that the best growth opportunities are behind it; however, by combining a moderate growth rate with its substantial yield, investors can anticipate returns around 10%, aligning with broader market expectations. For conservative income investors seeking substantial and dependable yield, Enterprise may outshine Chevron.

Final Thoughts: Choosing Between Two Strong Contenders

Chevron remains an exceptional energy company with significant sector exposure. Purchasing Chevron aligns well with those desiring diversified investments in energy. Conversely, if high yield is your main concern, focusing on the midstream sector through Enterprise Products Partners and its attractive 7.2% yield might be the more logical choice. While Enterprise may lack excitement, its reliable income potential could be exactly what dividend investors seek.

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Reuben Gregg Brewer holds no positions in any stocks mentioned. The Motley Fool has positions in and recommends Chevron. They also recommend Enterprise Products Partners. Read their disclosure policy for more information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.