If you've been investing for a while, chances are you've read about maintaining a balanced portfolio. But sometimes it's hard to know the benefits of diversification unless you've experienced them first-hand.
Earlier this year, many growth stocks tanked while value stocks, from Berkshire Hathaway to Coca-Cola, soared as investors flocked to companies that can be counted on no matter what the economy is doing.
On Friday, the broader indexes fell due to flaring tensions in the Middle East. But oil prices surged, and in turn, so did the stock prices of many defense contractors and oil and gas companies.
While trading in and out of stocks based on near-term factors is never a good idea, it could be wise to include top oil stocks in a balanced portfolio, especially for generating passive income, as many oil stocks sport high yields.
Here's why ExxonMobil (XOM 0.40%), ConocoPhillips (COP 0.37%), and Kinder Morgan (KMI 1.04%) stand out as top energy stocks to buy in the second half of 2025.
Image source: Getty Images.
ExxonMobil is operating with a long-term mindset
Even after shooting up 7.7% last week, there are plenty of reasons why ExxonMobil remains one of the best overall buys in the oil patch.
ExxonMobil continues to reduce its production and operating costs by investing in high-quality plays, or what it calls "advantaged assets." These assets are in regions where ExxonMobil has competitive advantages or where there are factors that make it easier to produce oil and gas at scale.
NYSE: XOM
Key Data Points
For example, one of the advantaged assets is the Permian Basin, the largest onshore oil play in the U.S. ExxonMobil was already established in the region, but it drastically expanded its position when it bought Pioneer Natural Resources in 2024. The Permian has plenty of existing infrastructure, access to resources like water, labor, and other factors that make it fairly easy to grow production as long as oil and gas prices cooperate.
Another advantaged asset is Guyana. Unlike the Permian, Guyana is an offshore play, where longer-term projects and years of investment are resulting in low-cost oil production. Projects like these are why ExxonMobil believes it can reduce its breakeven operating figure to $35 per barrel of Brent crude oil by 2027 and $30 per barrel by 2030. Brent crude oil prices jumped over 7% on Friday to around $74 per barrel -- giving ExxonMobil a large margin for error to turn a profit even when prices aren't as high.
ExxonMobil also has a massive refining and marketing business and is ramping up its spending on low-carbon investments, like carbon capture and storage. These investments could help ExxonMobil diversify its revenue stream and tap into industries that could offer better long-term growth than oil and gas as countries and companies pursue environmental targets.
Throw in 42 consecutive years of dividend raises, a 3.5% dividend yield, and a mere 14.9 price-to-earnings (P/E) ratio, and it's easy to see why ExxonMobil is a balanced energy stock to buy in the second half of 2025.
A coiled spring for higher oil and gas prices
ConocoPhillips is one of the largest U.S. exploration and production (E&P) companies, meaning it doesn't have a big downstream or chemical product solutions business.
Like ExxonMobil, ConocoPhillips has been on a merger and acquisition spree in recent years, buying E&P Concho Resources in January 2021 at a dirt cheap price during the pandemic-induced industry downturn and then more recently buying E&P Marathon Oil in November 2024. ConocoPhillips is now a much bigger company than a few years ago, but it has stayed true to its culture of keeping a watchful eye on costs, a strong balance sheet, and betting big on its best ideas.
NYSE: COP
Key Data Points
In its latest quarter, ConocoPhillips produced 2.389 million barrels of oil equivalent per day (boe/d), 1.462 million of which was in the Lower 48 (U.S. excluding Alaska and Hawaii). The majority of the company's Lower 48 production is in the Permian, with 816,000 boe/d for the quarter. ConocoPhillips is the third-largest U.S. producer behind only ExxonMobil and Chevron.
Despite a diverse production portfolio, ConocoPhillips still generates extremely impressive margins. In its first quarter, the company realized a $53.34 barrel of oil equivalent price. And yet, it still generated gobs of free cash flow and earnings, with $2.09 in adjusted earnings per share and $5.5 billion in cash from operations. ConocoPhillips is generating plenty of earnings and cash flow to pay its $0.78-per-share ordinary dividend, or $3.12 yearly, which amounts to a 3.2% yield.
In fact, ConocoPhillips is so profitable that it can afford to repurchase stock at a breakneck pace. Stock buybacks are a core part of the company's capital return strategy. Within three years, ConocoPhillips plans to offset nearly the equivalent shares it issued for the all-stock acquisition of Marathon Oil. For several quarters now, ConocoPhillips has spent more on buybacks than on dividends, which again it can afford to do because of its cash flow.
ConocoPhillips is a very well-run E&P that is doing a great job managing its large business without taking too many risks and jeopardizing its financial health. It is arguably the best E&P for investors to buy and hold over the long term while still collecting a steady stream of passive income.
Kinder Morgan wins from increased energy consumption
Kinder Morgan doesn't produce oil and gas or refine it. Instead, it operates in the midstream part of the oil and gas value chain with pipelines and energy infrastructure assets like storage facilities, gas processing plants, terminals, and more recently renewable natural gas (RNG) production facilities. RNG is made from wastewater, dairy manure, food waste, or landfill gas rather than natural gas extracted from the ground.
For years, Kinder Morgan was a consistently disappointing stock. It slashed its dividend by 75% in December 2015 due to the oil and gas downturn. It gradually built the dividend back up, paid down debt, and improved its free cash flow. But the company struggled to justify spending on new capital-intensive energy infrastructure projects because domestic natural gas consumption isn't expected to grow much over the long term.
NYSE: KMI
Key Data Points
A few factors have changed Kinder Morgan's investment thesis, making it much more enticing for the company to invest capital in new projects. The first is the opportunity to export natural gas overseas by cooling and condensing it into a liquid -- known as liquefied natural gas (LNG). Russia's invasion of Ukraine accelerated European interest in LNG, and energy-dependent countries like Japan, South Korea, and China are big buyers of LNG.
The second factor is the opportunity to invest in energy infrastructure assets for low-carbon fuels, such as RNG and hydrogen. The third factor is the anticipated need for more power due to artificial intelligence workflows. Kinder Morgan has several medium-term expansion projects to support the growing demand for natural gas.
Kinder Morgan has a clear runway for growing its FCF, and in turn its dividend, which currently yields 4.2%.
Three ways to power your passive income stream
ExxonMobil, ConocoPhillips, and Kinder Morgan offer three different ways to boost passive income by investing in the energy sector.
ExxonMobil is a reliable dividend stock with an impeccable track record for boosting its payout. ConocoPhillips has the most upside potential from higher oil prices, but it also has a highly efficient asset base that can generate stable FCF even at weaker oil prices. Kinder Morgan is a good bet if you believe natural gas will continue playing an important role in the energy mix.
Add it all up, and ExxonMobil, ConocoPhillips, and Kinder Morgan are three great buys for the second half of 2025 to boost your passive income stream.
