Countries around the globe are looking for ways to reduce carbon emissions, which is great and speaks to the current growth in the clean energy space. Only the shift from carbon fuels like oil and natural gas to cleaner alternatives like wind and solar isn't as easy as flipping a light switch. Even under the most aggressive clean energy scenarios oil and natural gas will be important parts of the global energy pie for decades to come.

There's two ways to play this space right now -- one with a focus on today, and another that looks more toward a cleaner future. 

1. We know this stuff works

Investors looking at an energy investment are probably best off with a large, diversified name like Chevron (CVX -0.17%). This integrated energy giant's business spans from the upstream (drilling) to the downstream (chemicals and refining) sectors and everything in between. This portfolio diversification generally helps to smooth out the inherent ups and downs in the oil and natural gas markets, since downstream businesses often benefit from lower commodity prices.

Chevron, meanwhile, adds an extra level of safety, with a conservative balance sheet and a lower debt-to-equity ratio than any of its closest peers. That remains true even after an opportunistic acquisition made during the 2020 industry downturn.

A person with offshore oil rigs in the background.

Image source: Getty Images.

That acquisition is important here, because it basically meant that Chevron doubled down in the energy patch despite the global push for clean energy. It's not that the company is ignoring environmental issues, just that it still thinks the best returns are to be found in sticking to its historical knitting. And that means a continued focus on oil and natural gas. Remember that oil and natural gas have been very profitable over time: Chevron has an over-three-decade-long streak of annual dividend hikes under its belt. That includes a hike in pandemic-hit 2020 and another in 2021. That's not something that a weak and struggling business does.

Meanwhile, Chevron has a strong pipeline of projects in the works that won't break the bank but will keep production growing over the foreseeable future. So long as oil remains a vital part of the energy picture, Chevron looks like it will be a big player -- and, if history is any guide, a rewarding investment option for investors. The dividend yield today, meanwhile, is a historically high 5.6%, suggesting that shares are cheap right now. If you believe oil is here to stay for at least a couple more decades, then highly focused Chevron is a good bet.

CVX Dividend Per Share (Quarterly) Chart

CVX Dividend Per Share (Quarterly) data by YCharts

2. Hedging your oil bet

That said, it is hard to deny that clean energy is increasing in importance. It will eventually displace oil as the dominant energy source globally. That's why some investors might prefer to avoid Chevron and instead focus on an integrated oil giant that's already started to shift its portfolio to include more clean energy assets. An interesting name on that side of the equation is Royal Dutch Shell (RDS.B)

To be fair, Shell got off to a rocky start on the clean energy front. It cut its dividend at right about the same time that it announced that it would refocus its business to include more clean energy investments. This was a big shift -- Shell was basically looking to hit the reset button so it could more easily adjust along with the world around it. At the time, it stated that it wanted to return to dividend growth as soon as possible. It has since hiked the dividend three times, clearly living up to that commitment.

Because of the dividend cut, the stock's yield is around 3.8%, which is at the low end of its peer group. However, the prospects for continued dividend growth are compelling following the dividend reset.

There are a lot of moving parts, but Shell wants to shrink its upstream business from 42% of its capital spending in 2020 to just 25% or so in 2025. Big oil projects are expected to decline in favor of natural gas investments, a cleaner burning fuel that's projected to help with the transition to clean energy. Meanwhile, "transition" and "growth" businesses, which are largely cleaner in nature (including things like electric vehicle charging stations) are expected to see materially increased spending, going from nearly 60% of spending in 2020 to as much as 75%. Stepping back, Shell is basically using its cash cow oil and natural gas businesses to fund its transition toward clean energy. If that sounds like a winning, middle-of-the-road plan, then Shell and its return to dividend growth might be the right energy pick for you.

A work in progress

To be sure, the world is in the middle of a major energy transition. It will not be quick, and it will not be smooth -- meaning there's ample opportunity for investors to keep owning and benefiting from energy stocks.

If you think oil still has a very long runway ahead, Chevron is probably the best positioned energy giant to own. If you want to hedge your oil bet just a little, then Shell, which is back to rewarding investors with dividend growth, could be the better option. Both, however, are important industry names that you should be able to hold onto for years to come.