In 2020 I sold ExxonMobil (XOM 0.02%) stock to capture some losses and offset capital gains elsewhere in my portfolio. I replaced it with TotalEnergies (TTE -0.32%) for one very specific reason, and that reason still holds today, even after the energy market rebound over the past year or so. Here's why TotalEnergies remains my favorite energy stock.
Why I prefer TotalEnergies to Exxon
Exxon is an incredibly well run oil major, with a diversified portfolio that traverses the industry from drilling (upstream) to chemical and refining (downstream). Although not perfect, the portfolio diversification helps to soften the blow when oil prices tank. In 2020, when oil was tanking, the company basically told the world that it was sticking to its oil and natural gas roots. It has since faced material investor pushback and has gotten at least a little more serious about greening its portfolio, though some see this as only lip service.
Image source: Getty Images.
That's actually why I switched to TotalEnergies after selling Exxon in the 2020 downturn to harvest some tax losses. I don't personally have any problem with oil or natural gas, both of which are vital to modern life (and help lift vast numbers of people out of poverty). In fact, I expect these carbon fuels to remain important for decades to come, despite the ESG zeitgeist that is strongly supporting clean energy investments. But I'm a fan of diversification, and hedging my bets on carbon fuels seems like a better choice than basically going all in on oil by sticking with Exxon.
TotalEnergies has specifically laid out plans to invest in both its carbon business and its "electrons" operations. The quick overview of the plan is to grow on both sides, with "electrons" making up 15% of the business by 2030. That's going to be funded by cash flows from the carbon operations, which will shrink as a percentage of the whole, but grow on an absolute basis. Natural gas exposure is slated to expand as the company's oil business is honed down to just its most profitable assets.
On dividends
That plan still makes sense to me. However, what really attracted me to TotalEnergies was that it made this commitment while also remaining committed to sustaining its dividend. Shell and BP also came out with clean energy plans at about the same time, but they cut their dividends.
To be fair, I understand that both Shell and BP were basically hitting the reset button on their businesses. And at the time, oil prices were sitting at painfully low levels, so cutting the dividend was a quick and easy way to increase cash availability for other purposes. But TotalEnergies' approach, which recognized that oil is an inherently volatile commodity, seemed more realistic. With oil prices back up in the $100-per-barrel range, TotalEnergies can easily support both its dividend and capital investment plans. In fact, like many of its peers, it's even looking to buy back some stock.
TotalEnergies isn't perfect by any means. For example, U.S. holders will have French taxes withheld from their dividend checks. You can get that back come tax time, but it means more paperwork. And TotalEnergies has a history of dealing with countries that others might prefer to avoid. The company has managed this risk well over time. Meanwhile, it offers the highest yield of any of its integrated oil peers at 6.1%. And, as noted, the dividend survived the 2020 pandemic because of the company's stated commitment to returning cash to investors via dividends.
Oil with a clean energy bonus
I own two energy investments, TotalEnergies and Enbridge, both of which have the same general clean-energy logic behind them. I am investing in companies that have material carbon energy footprints that they are using to shift, over time, into cleaner alternatives.
TotalEnergies is my go-to drilling name, and I'm still happy I own it. I still believe it is the best option for income investors that want to hedge their oil bets with a touch of clean energy, even after oil prices have rebounded.
