Chevron(NYSE: CVX) is one of the largest energy companies on the planet, sporting a massive $270 billion market cap. It competes with integrated majors like ExxonMobil(NYSE: XOM), Shell(NYSE: SHEL), BP(NYSE: BP), and TotalEnergies(NYSE: TTE).
Is there a reason why investors would want to own Chevron stock rather than its peers? The answer is a very clear "yes." Here's what you need to know.
A similar group of giants
Chevron, ExxonMobil, Shell, BP, and TotalEnergies all use the same basic business model. They produce oil and natural gas, transport it, process it, and sell it. This means their businesses span from the upstream (drilling) through the midstream (pipelines) and all the way to the downstream (chemical and refining). The key to this approach is that different segments of the energy sector perform differently at different times, which helps to soften the industry's natural peaks and valleys. For example, downstream businesses can benefit from low oil prices, which are a cost center for this segment of the industry.
Things tend to diverge a little from this point, however, which might help to give Chevron a leg up on its peers. But in the end, it is likely to be the nuances that matter most.
Reasons to buy Chevron stock
One of the first things that dividend investors are likely to note about Chevron is its dividend yield, which is around 4.2%. That's not the highest on offer in the peer group, with BP and TotalEnergies both offering larger income streams. But there's a little twist here that's important.
TotalEnergies, which has the highest yield of the group, is based out of France, and investors have to pay foreign taxes on its dividends. Those taxes can be claimed back come April 15, but it complicates your tax preparation, and there's a cap on the total amount you can claim. So TotalEnergies, despite a higher yield, isn't necessarily a better choice.
CVX Dividend Yield data by YCharts
There's also another notable issue to consider. Chevron has increased its dividend for 36 consecutive years. That's second only to ExxonMobil's 41 years in the peer group. In fact, BP and Shell both cut their dividends during the coronavirus pandemic as they announced plans to increase their investments in clean energy (TotalEnergies made that same commitment without a dividend cut). So investors that favor stocks with growing dividends will probably prefer Chevron over its European peers. Notably, despite having a higher yield, BP's cut will probably take it out of the running for many dividend investors.
But Chevron also has a slight leg up on ExxonMobil as well. While it wouldn't be a mistake to buy ExxonMobil by any stretch of the imagination, Chevron's debt-to-equity ratio of 0.12 times is better than Exxon's 0.2 times. So for ultra-conservative dividend investors, Chevron might win the day -- it has more room to take on debt to support its business and dividend when there's another energy downturn.
CVX Debt to Equity Ratio data by YCharts
Reasons to sell Chevron stock
So there are plenty of reasons to like Chevron, but there is at least one notable reason to dislike it -- the global shift toward cleaner energy options, like solar and wind power. Although this transition is likely to take decades, Chevron and ExxonMobil have both chosen to stick to their oil and natural gas strengths, if you will. They aren't exactly shoving their heads in the sand, but they also aren't moving aggressively to transition with the world. BP, Shell, and TotalEnergies have all been more proactive.
Yes, that resulted in dividend cuts at BP and Shell, and both of these companies have effectively walked back their plans to some degree, but if you think the future is going to get green quickly, then Chevron is probably not going to be the right stock for you. TotalEnergies, which didn't cut its dividend and hasn't walked back its clean energy plans, would probably be a better choice.
Reasons to hold Chevron stock
If you own Chevron, there's really no reason why you should sell it to buy another integrated energy major unless you feel strongly about the environmental issue. In fact, demand for carbon fuels is expected to remain strong through at least 2050, according to both the U.S. Energy Information Administration (EIA) and the International Energy Agency (IEA), two of the most important industry watchers. And within that period, the use of coal is expected to decline, with oil and natural gas demand individually either holding steady or growing. So there's decades of energy demand ahead for Chevron to service and, at least at this point, no particular reason to worry about Chevron's future.
More reasons to buy than sell Chevron
When you add it all up, Chevron is more likely to be a buy for most investors looking at the integrated energy space than a sell (and if you own it there's no immediate reason you would want to dump it). There are nuances, of course, which may push you toward one stock or another, but if you want a reliable dividend stock Chevron is a great starting point.
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Reuben Gregg Brewer has positions in TotalEnergies Se. The Motley Fool has positions in and recommends BP. The Motley Fool recommends Chevron. The Motley Fool has a disclosure policy.
