The energy sector is volatile. That's a fact of investing life that anyone looking at the space needs to clearly understand. But not all energy companies are alike, and that can open up opportunities for investors that can see past what are sometimes headline-grabbing energy swings, like the price reversals that have taken place in recent days.
Right now, Chevron (CVX 2.66%) is one high-yield energy laggard that is worth buying and holding for the long term.
What is going on with oil prices?
The first thing that investors need to understand is that oil prices can rise and fall in often dramatic, and swift, fashion. Even when the moves aren't rapid, they can still be material.
During the coronavirus pandemic, oil prices plunged. Coming out of the pandemic, they rallied strongly. And after peaking in 2022, oil prices slowly declined by around 50%. Even after the recent price rise on geopolitical concerns, oil prices are still down nearly 50%.
Image source: Getty Images.
That has had a notable impact on energy stocks, which as a group are down a touch over 10%, using Energy Select Sector SPDR ETF as an industry proxy. Chevron, however, is down a bit more than 20% from its peak.
What's interesting is that Chevron's closest peer is fellow U.S. integrated energy giant ExxonMobil, which has fallen about as much as the brother energy group. In other words, Chevron is a laggard.
What does Chevron do?
Exxon and Chevron are both integrated energy companies. That means they have exposure to the entire energy value chain. This provides material balance to their businesses, since each segment of the energy industry (the upstream, midstream, and downstream) operates a little differently. This diversification helps to smooth out the industry's commodity driven ups and downs.
CVX Debt to Equity Ratio data by YCharts
Moreover, Exxon and Chevron both have very strong balance sheets. Exxon's debt-to-equity ratio is an ultra-low 0.15x, while Chevron's is close behind at 0.2x. Both have much stronger financial positions than European peers BP, Shell, and TotalEnergies. This gives Exxon and Chevron a greater ability to lean on their balance sheets during energy downturns to support their businesses and dividends.
Exxon has increased its dividend for an incredible 43 consecutive years. But Chevron is no slouch, with a dividend streak of 38 years. In many ways, Exxon and Chevron are very similar businesses.
So why is Chevron's stock down so much more than Exxon's?
The quick answer is that Chevron is facing some company-specific headwinds that will take a bit of time to work through. One is the proposed acquisition of Hess, which has turned out to be more complicated than hoped. The second is Chevron's investment in Venezuela, which has become a political football. Neither is likely to derail Chevron over the long term, but they are going to be hindrances over the near term. Investors are reacting by punishing the stock.
A high-yield opportunity
The big story here, however, is Chevron's nearly 4.7% dividend yield. Exxon's yield is around 3.5% and the industry average is about 3.5%.
If you can stomach investing against the crowd, Chevron is a high-yield energy stock that you may want to add to your portfolio today and hold forever. Once this financially strong integrated energy company works through its headwinds, Wall Street will likely reward it with a higher valuation. And, in the meantime, you can collect the historically reliable dividend stock's outsized yield.
