Investing in Integrated Energy: Why Chevron and TotalEnergies Are Strong Long-Term Picks

If you’re looking into oil stocks, some of the best long-term options are likely to be found among integrated energy giants. Historically, the most opportune moment to invest in these companies tends to occur during periods of weak oil prices—a scenario we currently find ourselves in. Here, we will delve into two compelling high-yield oil stocks to consider: Cisco (CVX) and TotalEnergies (TTE). Here’s why both are worth your attention.

The Resilience of Integrated Energy Models

The energy industry can be broken down into three main segments: upstream, midstream, and downstream. Upstream companies are involved in the exploration and extraction of oil and natural gas. Their financial performance tends to mimic the volatility of oil and gas prices. Midstream companies focus on the transportation of these resources via pipelines and other infrastructure, generally generating stable revenue through a toll-taking model, though they often experience slower growth. Downstream companies, encompassing refining and chemical operations, also face the challenge of commodity price volatility.

Investing solely in one particular segment can expose investors to significant risk; however, integrated energy companies combine these three areas of the energy value chain, providing a cushion against the market fluctuations inherent to any single segment. Furthermore, these large entities typically operate in various geographic regions, allowing them to capitalize on the most attractive investment opportunities globally. If you’re considering a long-term investment within the energy sector, integrated energy companies should be on your radar.

Chevron and TotalEnergies: Standouts in the Integrated Arena

Among the independent integrated energy giants, we find several notable players, including ExxonMobil (XOM), Chevron, Shell (SHEL), BP (BP), and TotalEnergies. Among this group, Chevron and TotalEnergies stand out for their robust dividend yields and strong business fundamentals.

Certainly, Chevron Holds Its Ground

Currently, Chevron offers a healthy dividend yield of around 5%, significantly above ExxonMobil’s 3.8% yield and the industry average of approximately 3.6%. Although Chevron encounters certain obstacles, including a complicated acquisition yet to be finalized and operations in politically unstable regions like Venezuela, these issues are likely transitory. Long-term dividend investors may find comfort in Chevron’s proven history of raising its dividends annually over the past 38 years. Furthermore, the company boasts one of the strongest balance sheets in its sector, with a low debt-to-equity ratio second only to ExxonMobil. This combination of attractive yield, financial stability, and dedication to dividends makes Chevron a commendable investment choice in the oil landscape.

TotalEnergies: An Innovative Contender

TotalEnergies presents another solid option for investors looking for strong dividends, boasting a yield of 6.5%. U.S. investors may need to account for French taxes on dividends, although some of those could be reclaimed during tax filings. Unlike competitors BP and Shell, who slashed dividends in 2020 while pivoting towards clean energy, TotalEnergies maintained its dividend. Since then, the company has not only restored its dividend but has also expanded investments in cleaner energy assets. Importantly, TotalEnergies is strategically pushing into the electricity sector, a move that aligns with projections of increasing electricity demand worldwide, particularly as the sector anticipates growth from 21% to an estimated 32% of final power use in the U.S. by 2050.

Strategic Considerations: Timing and Choices

Oil prices have been experiencing volatility recently, and while this can be unsettling, it presents a unique opportunity for those looking to make long-term investments in the oil patch. Given the current market conditions, investing in integrated energy giants like Chevron and TotalEnergies becomes increasingly appealing. Their distinctive strengths—Chevron with its attractive yield and financial resilience, and TotalEnergies with its progressive shift towards electricity—position them strongly for the future. As serious investors, it’s essential to consider not just where we are, but where we are headed in this evolving energy landscape.

In summary, if you’re exploring options for long-term investments in the energy sector, both Chevron and TotalEnergies should be at the forefront of your considerations. Their respective strategies and foundational strength may provide not just stable yields, but also growth opportunities in the changing energy paradigm.