HomeBusinessThe smartest dividend-paying oil stocks to buy now with $500

The smartest dividend-paying oil stocks to buy now with $500

Oil and natural gas are highly volatile commodities. That’s probably the first lesson energy stock investors learn from owning shares in companies like Chevron (NYSE: CVX) And Devon Energy (NYSE: DVN). Even more stable industry participants, such as Partners for business products (NYSE:EPD)may see their value change due to investor sentiment.

But there’s a reason to consider all three of these oil-linked dividend payers if you have $500 or $5,000 to invest today.

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The energy sector is normally divided into three broad groups. Companies that produce oil and natural gas operate in the upstream segment. Those that transport oil and natural gas are in the middle segment. And those that process oil and natural gas into things like chemicals and fuel are in the downstream segment. Each segment has different operational dynamics.

Chevron operates in all three sectors: upstream, midstream and downstream. This makes it an integrated energy company. Its diversification helps smooth out the ups and downs inherent in the energy industry, but does not completely eliminate the fluctuations.

The company also has a global reach, further increasing diversification. And the energy giant has a very strong balance sheet, with a small debt-to-equity ratio of around 0.2. This allows the company to lean on its balance sheet during industry downturns so it can continue to invest in its business and support its dividend.

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All told, Chevron is a great option for more conservative investors who want long-term oil exposure in their portfolios. It is striking that the dividend has been increased annually for 37 years in a row. The yield today stands at an attractive 4.1%.

Devon Energy is a completely different company. This company operates exclusively in the upstream sector and produces oil and natural gas. It is also geographically focused on North America.

This is an inherently more volatile investment than Chevron and is only suitable for more aggressive investors. That said, the company’s dividend policy here provides an interesting twist as it is variable.

Essentially, Devon Energy pays out bigger dividends when its business does well. Given the upstream focus, this will generally be the case when oil and natural gas prices are high. In effect, shareholders are directly rewarded through larger dividend payments when energy prices rise.

Of course, this also means that dividends will be reduced if energy prices fall. And you can’t really look at the quoted dividend yield as a reliable indicator of the income you’ll generate over time (for reference, the yield is currently 3.7%).

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