If there’s one thing investors can expect when putting money to work in the energy sector, it’s volatility. As commodities, oil and natural gas have a long history of rapid, often dramatic price movements.
This is why investors looking at the sector should probably consider sticking to the biggest and best companies, which typically means integrated energy giants like Chevron (NYSE: CVX) And Total Energies (NYSE: TTE). This is why these two stocks stand out today for investors looking for high returns.
There are companies with longer streaks of annual dividend increases, but you have to give credit where it’s due. Chevron’s 37 consecutive annual dividend increases are impressive considering the highly volatile nature of the industry in which the company operates. The shares are available for less than $500 each, and the dividend yield is a very respectable 4.1%. For comparison: the S&P500 yields only 1.2%, and the average energy stock has a return of only 3.1%.
Supporting that above-average yield is one thing energy company with a broadly diversified portfolio, covering the upstream (energy production), midstream (pipelines) and downstream (chemicals and refining) segments of the industry. Moreover, its asset portfolio is spread all over the world.
Taken together, this diversification helps smooth out the peaks and valleys that energy prices regularly fluctuate through. Chevron also has one of the strongest balance sheets, with a debt-to-equity ratio of 0.17 times. That would be low for any company, but above all it gives management the leeway to exert influence to finance the company (and its dividend) during an energy sector downturn.
Chevron isn’t firing on all cylinders right now. It is having trouble completing the acquisition of Heswhich maintains business relationships with some of Chevron’s major competitors. And while production rose 7% year-on-year in the third quarter of 2024, return on invested capital (a key performance benchmark for the sector) declined slightly, and low energy prices weighed on the top and bottom lines.
But that’s just par for the course in the energy industry, noting that Chevron added a bit of leverage so the company could stay afloat as usual. If history is any guide, Chevron will weather the turbulence it faces, continue to reward investors with a growing dividend and expand its business over time.
If you’re looking for a pure energy stock with high returns that can weather the ups and downs of the sector, Chevron is probably 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 as heavily in the space, so it might not work for you.