The average American receives a tax refund of $3,138. That's a big windfall for most people. They could use that money to go on a nice vacation, pay down some of their debt, or invest for the future.
One place to consider investing your tax refund is the oil patch. While the sector can be volatile, there are some great oil stocks to consider buying these days. TotalEnergies (TTE +0.00%), ExxonMobil (XOM 1.78%), and Chevron (CVX 0.95%) stand out to some Fool.com contributors as the top ones to buy right now because they have the fuel to potentially grow your tax refund into a much bigger future windfall.
TotalEnergies is oil...and more
NYSE: TTE
Key Data Points
Reuben Gregg Brewer (TotalEnergies): One long-term trend that investors in the energy sector have to contend with is the increasing use of clean energy. That's not to suggest that oil and natural gas are going away; that's far from the case, as an "all of the above" approach appears to be the way forward. But the big growth in the energy sector has been in areas like solar and wind. What's an investor to do with the dichotomy between slow-growing carbon fuel businesses and faster-growing renewable energy? Punt with TotalEnergies.
TotalEnergies is one of the largest integrated energy companies on the planet. It will continue to supply the world with the carbon fuel it needs for as long as it is profitable to do so. But unlike most of its integrated energy peers, TotalEnergies has made a material commitment to cleaner energy options via its integrated power division.
This business grew 17% in 2024. Profit-wise, it is hard to compare integrated power to TotalEnergies' oil and gas operations, which all shrank in 2024, since commodity prices make those divisions fairly volatile. The real takeaway is that management is preparing today for a future in which cleaner energy sources have a more important role in the global energy landscape.
This matters because it means you can comfortably own TotalEnergies and collect its 5.8% dividend yield without worrying that the energy transition is leaving you behind. Better yet, profits from carbon fuels are effectively powering TotalEnergies' business shift. So, you are benefiting today from carbon fuels and using those same profits to benefit from what is likely to be a future with more clean energy in it.
The best of the best
NYSE: XOM
Key Data Points
Matt DiLallo (ExxonMobil): ExxonMobil is the undisputed leader in the oil patch. Last year, the company produced $34 billion in earnings and $55 billion in cash flow from operations. That marked its third-best year in a decade and led all international oil companies (IOCs).
What's even more impressive is how fast it's growing. Over the past five years, Exxon has grown its earnings at a roughly 30% annualized rate while increasing its cash flow at a 15% yearly pace. That hasn't just led its peer group; it has grown nearly four times faster than leading large-cap industrial companies in the S&P 500.
The keys to Exxon's success boil down to two factors: structural cost savings and high-return investments. Since 2019, Exxon has reduced its structural costs by more than $12 billion by simplifying business processes, optimizing supply chains, and modernizing its technology. Meanwhile, the company has invested heavily in expanding its best assets, which are generating high returns on capital employed (13% last year and 11% on average over the past five years).
Exxon plans to continue executing its strategy over the coming years. By 2030, the company estimates it can add $20 billion in earnings and $30 billion in cash flow.
It also expects to capture an additional $7 billion in cost savings over the next six years. In addition, it plans to invest about $140 billion in major projects and its Permian Basin development program to fuel earnings growth. This outlook positions the company to produce $165 billion in cumulative excess free cash flow to continue increasing its dividend (an industry-leading 42 straight years) and buy back stock.
ExxonMobil has delivered peer-leading total returns over the past five years. Given the growth still ahead, it seems likely to continue growing shareholder value in the future.
A no-brainer oil stock to own
NYSE: CVX
Key Data Points
Neha Chamaria (Chevron): Chevron is among the world's largest oil and gas companies and the second-largest publicly listed energy stock in the U.S. It is also one of the best dividend oil stocks out there and is on solid footing right now, having delivered record production and returned record cash to its shareholders in 2024. Chevron expects to grow production at a compound annual growth rate of around 6% through 2026. The company's focus, however, is on two things right now: costs and an impending acquisition.
Chevron expects to cut costs by $2 billion to $3 billion by 2026 and reportedly intends to reduce its global workforce by up to 20%, according to Reuters. The company is also consolidating all its businesses into two broad segments: (1) upstream and downstream and (2) midstream and chemicals. Management believes the reorganization will improve efficiency and deliver more value for its shareholders.
The biggest catalyst, however, would be the acquisition of Hess. Chevron agreed to acquire Hess in an all-stock deal worth $53 billion to gain access to its massive oil project in Guyana, but arbitration proceedings have stalled the deal. Chevron, however, is confident the acquisition will go through now that it has cleared the Federal Trade Commission's antitrust review.
Even without Hess, Chevron expects to grow its free cash flow (FCF) by an average annual rate of at least 10% through 2026, which should also support bigger dividends. Chevron's size, growth potential, and 37-year record of dividend increases make it one of the few no-brainer oil stocks to buy right now.
