Occidental Petroleum (OXY +4.17%) has a big-name shareholder in the form of Warren Buffett's Berkshire Hathaway. That has put the company onto the radar of investors that follow the so-called Oracle of Omaha's every move (which includes most of Wall Street). But just because Buffett owns Oxy, as it is more commonly known, doesn't mean you should. Here are two high-yield alternatives you might want to consider instead.
The reasons to not own Occidental Petroleum
Instead of looking at the story from the glass-half-full perspective, consider the glass-half-empty option with Occidental Petroleum. For dividend investors, that has to start with the dividend. The stock's dividend yield is a somewhat modest 2.5%. While that's higher than the miserly 1.3% of the S&P 500 index, it is below the energy industry average of roughly 3.1%. You could do much better on the income front.
On top of that, Oxy's dividend was cut dramatically in 2020. There were two reasons for that reduction. First, oil prices plunged during the coronavirus pandemic. Second, Oxy had an overleveraged balance sheet thanks to a large acquisition that Berkshire Hathaway helped it finance. It cut the dividend because it had to. The company is in better financial shape today, but neither the dividend nor the stock price is back to previous levels.
Two energy stocks to buy instead if dividends matter to you
If you are a dividend investor, you'll probably be better off avoiding Oxy even though it is in Berkshire Hathaway's portfolio. But you don't have to skip out on Buffett's approval because you can just buy Chevron (CVX +1.73%) instead. Chevron is also a large Buffett holding, but it has a 5% dividend yield and has increased its dividend for 38 consecutive years.
NYSE: CVX
Key Data Points
There are some headwinds facing Chevron. Its proposed acquisition of Hess is troubled and its Venezuelan operations have become a political football, for example. But it has a rock-solid balance sheet with a debt-to-equity ratio of just 0.15x. And the company also has a long history of deftly using leverage to maintain its business and dividend through rough patches. The company's debt-to-equity ratio, by the way, is dramatically better than the 0.75x ratio of Oxy.
An even higher-yielding choice is Enterprise Products Partners (EPD +2.58%). Although Enterprise isn't a Buffett holding, Berkshire Hathaway does have a large portfolio of midstream assets. Enterprise, a master limited partnership (MLP), happens to be one of the largest midstream players in North America. Midstream companies help move oil and natural gas from the upstream (drilling) to the downstream (chemicals and refining). They largely charge fees for the use of their assets, so cash flows are fairly consistent through the energy cycle.
NYSE: EPD
Key Data Points
That backdrop helps explain how Enterprise has been able to increase its distribution for 26 consecutive years. If that's not enough to get you interested, then you'll want to consider the 6.9% distribution yield. The yield will likely make up the vast majority of an investor's total return here, but if your goal is income that probably won't be a problem for you.
Buffett can still help guide your energy investments
Oxy gets a lot of attention because of its relationship with Buffett and Berkshire Hathaway. But that doesn't mean it is the best option for your portfolio, a fact that is particularly salient if you are a dividend investor. But you can still find some guidance from Buffett in the energy space given that he owns higher-yielding and more reliable dividend payer Chevron. His investment in the midstream sector, meanwhile, indirectly backs reliable and high-yield income option Enterprise Products Partners. Either one would be a better choice than Oxy for most dividend investors.
