beam (NYSE: CVX) The stock has lagged behind in terms of performance over the past year, gaining just 2%. ExxonMobil (NYSE: XOM) has increased by 8% during this period, and shell (NYSE: SHEL) has gained nearly 17%. But don't overlook Chevron if you're watching the energy sector. In fact, this lagging performance may actually make it one of the most attractive integrated energy stocks you can buy today.
What's Chevron's problem?
One word that should be on the tip of investors' tongues right now is “why.” As in, why is Chevron lagging behind other integrated companies? Energy Companies By that big a margin? A big part of the answer is that Chevron recently signed a deal to buy Hayes (NYSE: HES)But Hess is in a partnership with Exxon on large capital investments in the oil sector. Exxon is trying to hamper Chevron's takeover by saying it could buy Hess out of that partnership.
This would make the Chevron acquisition much less desirable and could even result in the deal being canceled. Another problem here is that figuring out who is right could cause material delays and require some legal disputes, which would be costly. This uncertainty has left a cloud over Chevron's stock, as investors generally don't like uncertainty.
But it's not all bad news, as Chevron has taken a pretty big hit. dividend yield That's a dividend yield of 4.2%, compared to its closest competitor, Exxon, which is yielding a dividend of just 3.4%. And while Exxon has increased its dividend for 42 years, it's hard to complain about Chevron's impressive 37-year streak of annual dividend increases. Simply put, they're both reliable dividend stocks.
Chevron is better prepared for adversity
That said, while Exxon is by no means a financial wretch, Chevron is currently in a better financial position than any of its closest competitors. Notably, Exxon's debt-to-equity ratio is about 0.2 times, while Chevron's ratio is about 0.15 times. The European counterparts make far more use of leverage. Chevron has the strongest Balance sheet One of the integrated energy majors. Leverage is important because the energy sector is highly cyclical and prone to dramatic price fluctuations.
CVX Debt to Equity Ratio By data YCharts
Basically, when oil prices fall, companies like Chevron take on additional debt to fund their business. In the case of Chevron and Exxon, that cash is used to support dividends. When oil prices recover, Chevron pays down the debt it took on so it can prepare for the next industry downturn. The chart below shows this very clearly.
CVX Debt to Equity Ratio By data YCharts
So, buying Chevron today would allow you to own the most financially strong company in the energy sector. And its yield is more attractive than that of its closest competitor, Exxon. But there's another factor to consider, and that's the Hess deal. Even if Chevron can't acquire Hess, it's big enough and financially strong enough to find another company to buy it. In other words, the negative sentiment here is largely based on a short-term issue.
Don't be afraid to buy a lagging product in this industry
At the end of the day, Chevron is a well-run energy company with a very strong financial foundation. Sure, there's a lot of public negativity hanging over the stock at the moment, but that won't last forever, and Chevron is fully capable of handling this problem head on. For investors looking to buy energy stocks and who think long-term, Chevron is probably the best place to be today at $1,000 (or more).
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*Stock Advisor returns as of June 24, 2024
Reuben Gregg Brewer We have no position in any of the stocks mentioned. The Motley Fool has a position in and recommends Chevron. The Motley Fool has a position in and recommends Chevron. Disclosure Policy,
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
