ExxonMobil had been the king of the hill in the U.S. energy market for decades. It was routinely one of the most valuable companies in the entire stock market. 

However, the oil company has fallen from its perch in recent years, briefly losing its place as the largest U.S. oil stock earlier this year. Weighing on the oil giant has been its inability to grow due to persistent volatility in the oil market and the accelerated adoption of renewables. It faces a long road to recovery, which might never happen. Because of that, our energy contributors don't think investors should bank on Exxon bouncing back. Instead, they believe Kinder Morgan (KMI 0.27%), Chevron (CVX 2.03%), and NextEra Energy (NEE -4.88%) have a better chance of outperforming not only Exxon but also the broader market over the long term. 

Oil pumps, a natural gas well, and solar panels with the sun setting in the background.

Image source: Getty Images.

Let the cash do the talking

Daniel Foelber (Kinder Morgan): Chevron, Total, and ExxonMobil are now the only oil majors that haven't cut their dividend payment this year. The other majors -- Shell, BP, Eni, and Equinor -- have all reduced their dividends by over 50%. At a whopping 10.4%, Exxon now yields the highest of any major, but that doesn't automatically make it a buy.

In the first nine months of 2020, Exxon lost an astounding $2.37 billion dollars, paid $11.15 billion in dividends, had $16.6 billion in capital and exploration expenditures, and earned $10.66 billion in cash flow from operations. This was compared to an $8.65 billion profit, $10.94 billion in dividend payments, $22.69 billion in capital and exploration expenditures, and $23.36 in cash flow from operations during the same period in 2019. Although Exxon has been able to reduce spending, its business is losing money and it isn't generating enough cash to pay its dividend.

XOM Net Total Long Term Debt (Quarterly) Chart

XOM Net Total Long Term Debt (Quarterly) data by YCharts

It seems that every financial metric is trending in the wrong direction for Exxon. The company has its highest net debt position in history at a time when its quarterly free cash flow (FCF) and net income are near 10-year lows. Considering this dangerous state of affairs, it's no wonder Exxon was removed from the Dow after nearly 100 years.

Investors are better off with a dividend stock that is actually making a profit and can pay its dividend with cash. Kinder Morgan is a leading natural gas company that has been doing that all year long. In Kinder Morgan's third-quarter report, the company reported a mere 5% decline in earnings per share compared to the same period last year. It plans to earn $1.99 per share in distributable cash flow (DCF) this year, which would be nearly double its annual dividend of $1.05 per share. Kinder Morgan yields 8.8%, nearly as much as Exxon but backed by a much healthier business.

The obvious choice

Reuben Gregg Brewer (Chevron): It's hardly an intellectual stretch to look at Exxon and think about fellow U.S. energy giant Chevron. But today there are some very good reasons to consider picking Chevron. One of the biggest is leverage. Historically Exxon's financial debt-to-equity ratio was below that of Chevron, but over the past year or so the two have switched places. Leverage has risen at both companies, thanks to the painfully low oil prices that exist today, but Chevron hasn't leaned nearly as hard on its balance sheet as Exxon has. 

CVX Financial Debt to Equity (Quarterly) Chart

CVX Financial Debt to Equity (Quarterly) data by YCharts

That brings up another key factor. Exxon entered the current industry downturn with huge spending plans that were aimed at returning the company to production growth. Chevron, benefiting from prior investments, didn't have as big a capital budget. Both have reduced spending in the face of terrible supply/demand dynamics, but Exxon's spending curtailments could have much bigger implications for its business over the long haul. 

Then there's the dividend. Both companies are using debt to help fund capital spending and dividend payments. Exxon has stated that it doesn't want to increase its leverage any further and is selling assets into a terrible market so it doesn't have to resort to a dividend cut. Chevron is actually buying assets, showing that it continues to operate from a position of strength. And management seems pretty confident that its dividend is secure. All in, Chevron, and its 7.1% yield, looks like a better option than Exxon right now.  

The new king of American energy stocks

Matt DiLallo (NextEra Energy): Electric utility NextEra Energy recently passed oil giants Exxon and Chevron as the largest U.S. energy company by market cap. It currently weighs in at $148 billion, compared to $142 billion for Exxon and $138 billion for Chevron.

Powering NextEra's rise has been its focus on renewable energy, as it's currently the world's largest producer of wind and solar energy. The company's steady investments in this sector have paid dividends for its investors over the years. Since 2004, NextEra has grown its adjusted earnings per share by an 8.4% compound annual growth rate, powering 9.4% compound annual dividend growth. That has given the utility the fuel to produce a more than 530% total return over the last decade. That not only outperformed the S&P 500's 257% total return but also obliterated Exxon's negative 30% total return during the past 10 years. 

That outperformance seems likely to continue. While Exxon had an ambitious plan to grow its earnings, this year's oil market downturn threw a wrench in its strategy. Because of that and the accelerating shift toward renewable energy, it might struggle to ever grow again. Contrast that with NextEra Energy, which recently increased and extended its earnings growth forecast, powered by its extensive renewable energy project backlog. Add that to the upside potential of emerging technologies like green hydrogen, and NextEra Energy has significant long-term growth opportunities. Because of that, investors should forget about hoping Exxon bounces back and invest in the next era of energy with this leading utility.