If you are looking at oil and natural gas stocks, there is one thing you should go in expecting — and that’s volatility. Oil prices are known to swing dramatically and, often, quickly. Any investor putting money to work, whether it be $100, $1,000, or $100,000, has to be prepared for periods of weakness because they will, eventually, arrive. Which is why buying an industry leader like Chevron (NYSE: CVX) is probably the best choice for most investors. Here’s what you need to know.
There are companies that drill for oil and natural gas, which make up the upstream segment of the oil industry. There are companies that transport oil and natural gas, and the products into which they get turned, via energy infrastructure assets like pipelines that comprise the midstream segment of the energy sector. And there are companies that refine and process oil and natural gas and turn them into things like gasoline and chemicals in the downstream segment of the industry.
Then there are companies that do all of that, with assets spread across the entire energy landscape. These are the integrated energy companies, a group that includes Chevron. The reason to do this is that each of the different segments of the energy industry performs differently at different times. The best example is that low oil prices will hurt the upstream business but often benefit the downstream business, which uses oil as an input. For most investors, owning an integrated energy company will be the best option in the energy sector.
Chevron competes with companies like ExxonMobil, BP, Shell, and TotalEnergies. However, if you are looking for an integrated oil company, Chevron stands out in some important ways.
Shell and BP both cut their dividends during the peak of the coronavirus pandemic. Although they have high yields, those dividend cuts will likely bother income investors looking for reliable dividend stocks. TotalEnergies didn’t cut its dividend, but it has been increasingly investing in electricity and renewable power assets. While it is changing with the world around it, as cleaner energy options grow in importance, it really isn’t a pure-play energy company anymore. That leaves Exxon and Chevron, both of which have stuck closer to their oil roots. And both of which have a long history of increasing their dividend year in and year out.
To be fair, Exxon’s 42-year streak of annual dividend increases is better than Chevron’s 37-year streak. But both streaks are impressive when you consider the huge swings in the price of oil and natural gas that have occurred over the past three decades. So, really, Chevron stands toe to toe with Exxon on this front. But it beats Exxon in two other important areas.
