The energy sector is cyclical, often going through gut-wrenching ups and downs that make it hard for even those with strong stomachs to watch the gyrations. ExxonMobil (XOM -0.04%), Chevron (CVX -0.78%), and TotalEnergies (TTE 0.33%), however, have proven that they understand investor desires for reliable passive income streams. All three are worth a closer look if you want to add some energy exposure to your portfolio today.
The growers
Although clearly not interchangeable, Exxon and Chevron share a lot of similarities. For example, they are both U.S.-based integrated energy giants that operate on a global scale. They are both continuing to largely focus on their core oil and natural gas operations, even as some peers make a concerted effort to embrace clean energy operations. And they both have decades of annual increases under their belts.
To put some numbers on that, Exxon has increased its dividend annually for 40 consecutive years. Chevron has hiked its payout for 35 years and counting. That makes them both Dividend Aristocrats, a highly elite group of companies that clearly believe in rewarding investors with regular dividend increases. What's so impressive about this, however, is that the energy sector is highly cyclical, so the dividend growth here has withstood numerous industry downturns, including the pandemic-led drop in 2020.
A key reason for this is that Exxon and Chevron both focus on maintaining strong balance sheets. Their respective debt-to-equity ratios are almost always at the low end of the peer group. That gives them the ability to lean on their balance sheets during hard times so they can keep investing in their businesses and pay their dividends. That financial strength and dividend commitment make them the kind of passive-income all-stars that dividend investors looking at energy stocks today should want to own.
Looking to change
TotalEnergies doesn't have the same dividend growth bona fides as Exxon or Chevron. However, when the pandemic hit and European peers BP (BP 0.69%) and Shell (SHEL 0.11%) cut their dividends, TotalEnergies was resolute in supporting its dividend. That said, BP and Shell cut their dividends at about the same time that they announced plans to shift more aggressively toward clean energy, so their decision on this front makes some sense. Only TotalEnergies has made the same energy transition commitment without saddling dividend investors with a dividend cut.
So if you like the idea of owning an energy company but want to hedge your bets on a clean-energy future, TotalEnergies is a pretty solid option. It has, notably, been using today's high energy prices to aggressively put cash to work toward cleaner alternatives.
That said, income investors should go in understanding that French taxes have to be paid on the dividends here. Those costs can be clawed back on your U.S. tax return. Also, shifts in exchange rates mean that U.S. investors will see slight variations in the quarterly checks they actually collect. However, it is quite clear that TotalEnergies understands the importance of passive income to its shareholders.
Collecting the checks
Exxon's dividend yield is around 4% today. Chevron's yield is just shy of 3.9%. And TotalEnergies comes in at about 5.2%. All are well above what you would get from an S&P 500 Index fund. Meanwhile, if inflation has you down, energy names like these, which are benefiting from the high energy prices that are crimping your pocketbook, may help to soften the blow. If you are looking to generate a passive income stream from the energy sector, this trio should be on your shortlist.
