Oil and natural gas are being displaced by cleaner alternatives, but the process is slow and likely to last decades. That's why ExxonMobil (XOM -2.78%) and Chevron (CVX 0.37%) are both sticking to their carbon fuel roots. If you are looking to buy an oil stock in November, this pair of industry giants should be on the shortlist. Here are a few reasons why.
Built for volatility
One of the distinguishing characteristics of both ExxonMobil and Chevron is their long history of annual dividend increases. With 41 and 36 years of annual increases, respectively, they have proven they can survive the inherent ups and downs of the highly volatile energy sector, while rewarding investors for sticking around with steadily growing dividends.
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There are a number of factors here. First, both companies operate across the entire energy value chain from upstream (drilling) through midstream (transportation) and all the way to downstream (refining and chemicals). This mixture of assets helps to soften the peaks and valleys caused by oil price swings because each segment of the energy sector reacts slightly differently to energy volatility. For example, downstream businesses often benefit from low oil prices since oil is a key input.
Second, both ExxonMobil and Chevron have a long history of operating with very low leverage. This is important because it allows each company to lean on its balance sheet when oil prices are low. Thus, they can continue to support their businesses and reward investors through the inevitable rough patches in the industry. When oil prices improve they reduce the leverage they used to navigate the downturn.
Basically, even conservative investors should be comfortable owning ExxonMobil and Chevron. That's particularly true if your investment goal is to create a reliable stream of passive income.
Doubling down on carbon fuels
The second big reason to like ExxonMobil and Chevron as oil stocks is that they are industry giants, with market caps of $419 billion and $278 billion, respectively. This matters because they have the scale to act as industry consolidators. That's been on display recently, with ExxonMobil agreeing to buy Pioneer Natural Resources (PXD -2.28%) and Chevron inking a deal for Hess (HES 0.67%). These are gigantic purchases.
The Pioneer transaction is valued at $64.5 billion, with Hess coming in at $60 billion; both figures include debt. Each comes with different benefits. Pioneer has material onshore U.S. energy exposure, while Hess has a mixture of onshore exposure and offshore exposure in Guyana, an increasingly important energy region. Still, the big picture is that ExxonMobil and Chevron have the ability to continue growing their oil businesses even as renewable power grows in importance by rolling up smaller industry players. Increased scale and the ability to cut costs should help them both continue their impressive dividend streaks.
There's a more subtle issue here as well. ExxonMobil and Chevron have the heft to buy big energy assets. While oil and natural gas are likely to remain important for years to come, making them attractive acquisition targets, at some point, this pair could shift gears and buy their way into the clean energy sector. Other energy companies like TotalEnergies are doing this right now via smaller transactions. ExxonMobil and Chevron are doubling down on oil, looking to squeeze out every last drop of profit. But there's no reason to believe they won't change direction when they believe the broader energy sector has reached a key inflection point and make a big clean energy buy.
Core reliable oil stocks
ExxonMobil's dividend yield is around 3.6%. Chevron's yield is roughly 4.1%. Both have offered higher yields in the past, usually when oil prices are in the dumps. However, if you are looking at oil stocks in November, this pair of reliable dividend payers should probably be on your radar screen. They aren't the most exciting oil stocks, but that's the point. And perhaps more importantly, they have the size and scale to remain relevant even as the world shifts toward cleaner alternatives.
