OPEC just announced that it plans to curtail oil production to foster higher commodity prices. Oil prices shot up, as did the share prices of energy companies like TotalEnergies (TTE 1.72%). While exciting, this type of volatility isn't unusual in the energy sector. It's also why long-term dividend investors interested in energy sector stocks need to consider the big picture, not the day-to-day ups and downs.
On that score, TotalEnergies stands out from its closest peers for its ability to deal with the current and future markets, which are likely to include far more clean energy.
The world needs oil today
Although it would be nice to flip a switch and immediately shift the world to clean energy like solar and wind power, that's just not possible. Oil and natural gas are deeply integrated into the global economy and will remain important for decades. This is one reason why owning an energy-focused company still makes sense for investors, particularly those who like dividend stocks.
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One of the hallmarks of the integrated energy majors, like TotalEnergies, is that they have generous yields. TotalEnergies' dividend yield, for example, is around 5.8%. That's the highest out of its most similar peers, a list that includes ExxonMobil (XOM 1.15%), Chevron (CVX 1.54%), Shell (SHEL 1.46%), and BP (BP 1.58%). The caveat here is that shareholders have to pay foreign taxes on TotalEnergies' dividend, and the actual dollar amount received will fluctuate with currency rates. Still, TotalEnergies is paying investors well to own it. On that note, the company increased its dividend by 5% this year and announced a large special dividend of roughly 1 euro per share.
TTE Dividend Yield data by YCharts
TotalEnergies is benefiting from strong energy prices today and it's returning that value to shareholders. But the energy giant's ability to weather the industry's ups and downs is getting better and better. For example, it recently announced that it has zero net debt, which means that it has enough cash to pay off all of its loans if it wants to. It also has a $25 per barrel oil break-even price, well below current oil prices and the over $90 per barrel break-even level it had in 2014. This combination means there's likely to be a lot of cash floating around for investment, even in the face of typically volatile oil prices.
TotalEnergies is preparing for tomorrow
That's good news for investors because it gives TotalEnergies the leeway to invest for today's energy demand and the clean energy future. For the world's current needs, the integrated energy giant is focused on limiting its oil investment to the best and lowest-cost opportunities. That helps explain the historically low break-even point noted above. It is also investing heavily in natural gas, which is expected to be a transition fuel as the world goes green. It staked out a sizable position in liquified natural gas (LNG).
Notably, TotalEnergies is the largest LNG exporter in the United States. That's a great position to be in now, given the energy uncertainty gripping Europe. But demand for LNG is expected to be lasting, so the real focus here shouldn't be the geopolitical tensions right now but the fact that TotalEnergies is positioned to grow its natural gas operations even as it shrinks its oil business, which it believes will lead to broader business growth in its carbon energy operations.
But that's not all management is up to by a long shot. TotalEnergies is also investing heavily in clean energy, including solar, wind, and power transmission and generation. Roughly a third of its $14 billion to $18 billion capital investment plans are earmarked for such non-carbon projects. This is a relatively small business today, so TotalEnergies is serious about its importance to the business over the long term. When you step back and analyze the situation, it is effectively using today's oil profits to build a cleaner future.
The company's peers aren't sitting around and doing nothing, but they don't have the same combination of positives. For example, Chevron and Exxon are both moving more slowly on the clean energy front than TotalEnergies. BP and Shell, meanwhile, have big plans for clean energy, but they cut their dividends in 2020 as they announced their business transformation goals. TotalEnergies maintained its dividend while also announcing a more rapid push into clean energy. All in, it simply stands apart from the group in a positive way.
TotalEnergies is not perfect, but it's pretty darn good
Every investment comes with a few warts. TotalEnergies, for example, subjects investors to foreign taxes and probably won't benefit as much from rising oil prices as some of the more oil-focused companies in the energy patch. And yet, when you step back and look at today's energy market and the one that seems likely to exist in the future, TotalEnergies looks like it is uniquely positioned to be a strong player now and in the market to come -- while also rewarding investors well for sticking out the ride.
This isn't the only energy company I own (Enbridge is my other big energy holding), but given the oil price volatility of late, I think TotalEnergies is a name that conservative income investors should do a deep dive on right now.
