The energy sector is the best performing sector in 2022 and for good reason. Geopolitical events paired with years of underinvestment have resulted in a supply demand imbalance. When the economy is growing and the oil and gas supply is reliable, it's easy to take the energy sector for granted. But without reliable fuel sources, modern economies grind to a halt.

A heightened focus on energy security sets the stage for a strong oil and gas sector that can grow alongside renewable energy. However, higher oil prices paired with a potential recession are bad news for chemical companies that depend on oil inputs to make plastics and other products. Two high-yield stocks that stand out now are Chevron (CVX 0.44%) and Dow (DOW 0.42%). Chevron is thriving and producing record profits, while Dow stock has sold off and trades at a dirt cheap valuation. Here's what makes each dividend stock a great buy now.

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1. The best oil and gas major

Chevron stock has tumbled alongside the rest of the oil and gas industry in the last few months as oil and gas prices have fallen due to fears that demand will slow. The sell-off has pushed Chevron's dividend yield back up to 3.9%. Even if oil and gas prices continue to slip, Chevron can still make a killing because it has lowered its cost of production and bolstered its balance sheet for years.

It is no exaggeration that Chevron is firing on all cylinders. One of the most jaw-dropping Chevron charts is its trailing-12-month (TTM) net income.

CVX Net Income (TTM) Chart.

CVX Net Income (TTM) data by YCharts.

Notice that Chevron went from a record loss of almost $12 billion in 2020 an all-time high TTM net income in just two years.

The company's profits and free cash flows (FCF) have outpaced the surge in its stock price -- even though Chevron stock is up 29% year to date. The result is that Chevron stock is the cheapest it has been in five years even though the stock price is near a five-year high.

CVX Price to Free Cash Flow Chart.

CVX Price to Free Cash Flow data by YCharts.

Earnings could decline from here given the price movement of oil and gas prices. But what the above chart shows is that even if earnings and FCF are cut by a third, Chevron stock would still be a reasonable value at around a 15 P/E ratio and a 15 price to FCF ratio. 

The dividend yield can also be used as a proxy for valuation. 

CVX Dividend Yield Chart

CVX Dividend Yield data by YCharts

Chevron's dividend yield peaked during the worst of the 2020 oil and gas crash. However, even now, the yield of 3.9% is above the 25-year average yield thanks to years of Chevron stock underperforming the broader market paired with consistent dividend raises.  

The company's diversified business in upstream, midstream, downstream, and global exposure gives it more stability than a pure-play producer. Despite relatively high oil and gas prices, Chevron and many of its peers have made only minor increases to production -- choosing instead to benefit from high margins and use excess profits to invest in alternative energy, buy back stock, and raise the dividend. The move looks wise, especially if oil and gas demand continues to fall.

All told, Chevron is arguably the best all-around oil and gas stock to buy now. And even if its earnings and FCF come down a little, the stock is still likely to be heavily discounted compared to its long-term average valuation.

2. A diversified chemicals company with a very attractive dividend

Economic growth and strong consumer spending tend to benefit materials companies that make more money when their end markets are strong. Dow, which is one of the largest chemical companies in the world, makes adhesives, sealants, polyethylene, polyurethanes, silicones, elastomers, plastomers, amines, chelates, and other products and technologies for major industries such as building, construction, infrastructure, chemical manufacturing, industrial applications, automotive, films, tapes, release liners for shipping, and even chemicals for beauty and personal care.

Dow is facing two headwinds right now. The first is that the economy could be contracting, which could lead to lower consumer spending and declining earnings across many of its core markets. The second is higher oil and gas prices increase input costs for Dow, which uses oil as a feedstock in its chemical plants. However, these headwinds seem to be priced in, as Dow stock is now down 39% from its 52-week high.

The company hasn't raised its dividend since spinning off from DuPont de Nemours and Corteva in 2019. But with a dividend yield of 6.3%, Dow already produces a sizable passive income stream. In 2021, the company earned $8.38 in diluted earnings per share, $6.26 in free cash flow (FCF) per share, and paid dividends of $2.80 per share. Put another way, the company could see earnings fall by two-thirds and FCF fall by half, and it would still be able to afford its dividend. Add it all up, and you have a high-yield dividend stock that looks like a great buy now.

A dynamic duo for an income-oriented investor

Chevron blends a high yield and a track record of payouts, while Dow stock provides an enviable amount of passive income from the dividend alone. Over the long term, both companies will likely face volatility in their earnings based on fluctuations in commodity prices and the broader economy.

Dividends help alleviate volatility by allowing investors to hold the underlying stock and collect passive income without selling shares. For patient investors looking for two industry-leading companies, Chevron and Dow look like a great all-around value now.