In the middle of the pandemic downturn in the energy sector I switched from ExxonMobil (XOM 0.02%) to TotalEnergies (TTE -0.32%). While the impetus for the move was collecting some tax losses to offset gains elsewhere in my portfolio, I've been extremely pleased with the shift. And with every quarter that goes by, I get happier and happier that I now own TotalEnergies. Here's the most recent update from the company's annual shareholder meeting to explain why this remains the case.
The big reason to love this oil giant
The broader energy sector is in a state of flux today as the world looks to reduce the amount of carbon-based fuel it uses in an effort to slow global warming. This is a complex issue, and the transition from carbon fuels to cleaner energy sources is likely to take a long time (think decades).
However, there are some top-level implications for more conservative investors like myself. The big one is that I don't want to own a company that is tied completely to drilling for oil, which, along with coal, is among the dirtiest fuel choices around. That's why an integrated oil giant like TotalEnergies, which spans from the upstream (drilling) to the downstream (refining and chemicals) spaces is a good starting choice.
Image source: Getty Images.
That said, TotalEnergies is well aware of the shifts taking place in the world today, and is actively reworking its portfolio. One key change is that it will be focusing only on its best oil investments, while working to expand its footprint in natural gas. This will lead to oil becoming less important in its product mix as natural gas becomes more important. Natural gas is cleaner-burning than coal and oil, and is expected to be used to transition toward a cleaner energy future.
In addition to that, TotalEnergies has a fairly long history of operating in the clean energy space. So it is well aware of what is happening in that energy niche, and is ready to take advantage of the opportunities it sees to broaden its reach. The overarching goal is to roughly triple the size of its "electrons" business by 2030. When you take into account all of the puts and takes, TotalEnergies is actually planning to grow its overall business while shifting toward cleaner fuel options under the surface.
All of this sounds like a reasonable plan to me as TotalEnergies works to remain a key player in the changing global energy sector. And it is vastly different from the path that Exxon has gone down -- the energy giant recently lost a board battle with dissident shareholders focused on clean energy following years of dragging its feet on the change front.
Things just keep getting better
But that's not all there is to like about TotalEnergies. For starters, the company made very clear during the pandemic-led energy downturn in 2020 that it could support its dividend as long as oil averaged around $40 per barrel. That was a level of dividend commitment that no other oil major was willing to make, and provided investors with something to monitor during what was a very difficult time. It's worth highlighting that the oil giant's main European peers actually cut their dividends as they started similar clean energy business transitions.
But there's more good news here. TotalEnergies just updated its dividend outlook, with the company noting that oil averaging above $50 per barrel could actually lead to dividend increases. Oil is trading in the $80-per-barrel range today, so this is not a pie-in-the-sky update. Over the near term, meanwhile, TotalEnergies is going to buy back $1.5 billion worth of stock as a way to return value to shareholders.
This update alone from the late September shareholder meeting was enough to put a smile on my face. My original expectation was that TotalEnergies would hold the line on the dividend for the foreseeable future, not consider increasing it. Clearly, it hasn't really done anything yet, but just knowing that dividend increases are on the table, and at what oil prices they will be considered, shows just how shareholder-friendly the company is.
TTE Dividend Yield data by YCharts
But there's still more going on. Prior to the shareholder meeting, TotalEnergies' CEO noted that the company would be willing to speed up its clean energy efforts if that's what the European Union desired. This shows a willingness to be flexible that Exxon has not demonstrated. And then, during TotalEnergies' September meeting, it highlighted that it would be putting roughly half of its $13 billion-to-$15 billion capital spending budget toward growth businesses over the next few years, with a material portion of that earmarked toward natural gas and renewable power. In other words, the company is putting its money where its mouth is in a very big way. TotalEnergies simply looks like it is doing all the right things for me, its business, and the world in general.
Not perfect, but perfect for me
To be sure, TotalEnergies has its flaws, including that it uses more leverage than its U.S.-based peers. However, when you look at the dividend commitment and the company's flexible efforts to change its portfolio while continuing to grow its business, it seems to me that TotalEnergies is one of the best options in the integrated major space. It's why I own it and remain quite pleased with my purchase. And, given its industry-leading 6.5% dividend yield, I suspect you might find it just as alluring as I do today.
