When looking at oil and natural gas stocks, there’s one thing to keep in mind: volatility. Oil prices are known to fluctuate dramatically and often quickly. Any investor putting money to work, whether it’s $100, $1,000 or $100,000, should be prepared for periods of weakness, because they will eventually occur. That’s 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 drilling for oil and natural gas, which are the upstream segment of the oil industry. There are companies that transport oil and natural gas, and the products into which they are converted, via energy infrastructure such as pipelines that form the middle segment of the energy sector. And there are companies that refine and process oil and natural gas and convert them into things like gasoline and chemicals in the downstream segment of the industry.
Then there are companies that do all that, with assets spread across the energy landscape. These are the integrated energy companies, which also include Chevron. The reason for doing 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 upstream businesses but often benefit downstream companies, which use oil as a raw material. For most investors, owning an integrated energy company will be the best option in the energy sector.
Chevron competes with companies such as ExxonMobil, BP, ShellAnd Total Energies. However, if you’re looking for an integrated oil company, Chevron stands out in a few key ways.
Shell and BP both cut their dividends during the peak of the coronavirus pandemic. Although they have high yields, these dividend cuts are likely to bother income investors looking for reliable dividend stocks. TotalEnergies has not reduced its dividend, but is increasingly investing in electricity and sustainable energy. Although it is changing with the world around it, as cleaner energy options become more important, it is not really a pure energy company anymore. That leaves Exxon and Chevron, both of which have stayed closer to their oil roots. And both have a long history of increasing their dividends 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 developments are impressive when you consider the enormous swings in the price of oil and natural gas that have occurred over the past thirty years. So basically Chevron is up against Exxon on this front. But it beats Exxon in two other key areas.
