Conservative investors should probably err on the side of caution and stick with the largest, best-run, and financially strongest companies. Chevron (CVX 0.37%) certainly stands tall on each of those benchmarks. However, that doesn't instantly make Chevron a buy, and some conservative investors might never want to own it.
Here's a quick look at Chevron and why you might want to buy it, hold it, or sell it.
Chevron is an industry leader
With a market cap of roughly $310 billion, Chevron is one of the largest energy companies on the planet. Its business includes exposure to the upstream, midstream, and downstream segments of the industry. That's oil and natural gas drilling, energy pipelines and transportation, and refining and chemicals, respectively. This varied exposure helps to even out the company's performance over time, since downstream businesses often benefit when energy prices are declining, and vice versa.
CVX Debt to Equity Ratio data by YCharts
On top of that, Chevron has one of the strongest balance sheets in the energy sector. Its debt-to-equity ratio of 0.14 is lower than that of all of its closest peers. This advantage allows the company to take on debt during industry downturns so it can continue to support its business and dividends until the energy sector recovers again. Notably, the dividend has been increased annually for 36 consecutive years. That's fairly impressive, given that the energy sector is highly volatile.
The case for buying Chevron
With that top-level overview, it should be pretty clear that there are a lot of things to like about Chevron. So if you're looking to add an energy stock to your portfolio, it would make sense to consider the stock. Adding to the allure here, the company expects to grow its energy production by 3% or more a year through 2027. So the business is not only industry-leading, but still growing, too.
That situation should support both ongoing dividend growth and the company's plans to continue buying back its own stock -- as much as 6% of its outstanding shares per year. These are the types of shareholder-friendly actions that long-term investors would want to see. In all, Chevron is a worthwhile way to gain exposure to the energy sector.
The case for holding Chevron
If you buy Chevron, or already own it, you'll probably want to keep it in your portfolio for a long time. It has deftly handled the industry's ups and downs while continuing to reward investors for sticking around. Selling when the energy sector is weak and the stock has probably sold off would be a mistake.
History suggests that an upturn will eventually show up and push the stock back to more attractive levels. Conversely, selling when the price is high is also problematic. Trying to time the peaks and valleys of the highly volatile energy sector is difficult, and you could end up missing out on the reliable income stream that Chevron is designed to throw off. This is really a buy-and-hold-type investment.
The case for selling Chevron
But here's the rub, you have to be willing to accept the inherent volatility of the energy sector if you're going to own Chevron. Despite its financial strength and diversified business, oil prices still drive the top and bottom lines to a great degree. Thus, financial performance and the stock price both tend to rise and fall along with energy prices, as the chart above highlights.
If you can't handle that kind of volatility, you shouldn't own Chevron. That's not meant to be a knock on Chevron, which tends to handle the industry's swings in relative stride. It's more a statement about investing in the energy sector, which can be trying at times.
Chevron is great ... if you want an energy stock
Chevron is down from the highs it reached earlier in 2023 but has started to rebound a little bit of late as energy prices have moved higher again. That's par for the course. The dividend yield today is 3.6%, which is kind of middle-of-the-road, historically speaking. It's hard to suggest the stock is a screaming buy right now. Patient investors might want to wait for a good energy downturn, which would probably lead to a highly attractive entry point.
However, if you're looking to get some exposure to the energy sector into an otherwise diversified portfolio, Chevron is the type of company you can buy and hold for years. But that's only if you understand and are willing to accept the inherent volatility of owning an energy stock.
