The one fact that has to be top of mind when looking at the energy sector is risk. That's because oil and natural gas prices are highly volatile and play a huge role in the financial performance of many energy stocks. But there are important nuances to consider before you hit the buy button on any stock.
Below are 10 no-brainer energy stocks to buy now, with an explanation of which types of investors might want to buy them.
1. Punt with an energy ETF
If what you really want is broad-based exposure to the energy sector, then picking individual stocks probably isn't going to be the best call for you. You'll be better off with an exchange-traded fund (ETF) that provides diversified exposure to the entire sector with one simple buy decision.
Two good options are The Energy Select Sector SPDR Fund (XLE -0.11%) and the Vanguard Energy Index Fund ETF (VDE -0.18%). Both have similar expense ratios and similar yields and either one would fit the bill for an investor looking for diversified energy exposure.
2. ExxonMobil is the industry giant
That said, if you want to buy one company that covers a lot of ground in the energy sector, then industry giant ExxonMobil (XOM 0.14%) is probably a good call. It is an integrated energy company, which means that it operates across the energy value chain. That helps to smooth out the ups and downs in energy prices over time.
Plus, the company has a strong balance sheet, which gives it the wherewithal to support its business and dividend through rough patches. Notably, the dividend has been increased annually for 43 years. The yield is currently around 3.6%.
3. Chevron is similar, but higher yielding
Chevron (CVX -0.42%) is the closest competitor to Exxon, but only because they both hail from the United States. Chevron is a smaller company, but still a giant with a market cap of about $260 billion (Exxon's market cap is roughly $480 billion).
Chevron also has a very strong balance sheet; however, its dividend yield is a bit more attractive at around 4.7%. Chevron is dealing with some company-specific issues right now (a difficult merger and operations in politically unstable countries), but the problems aren't likely to derail it over the long term. Yield-focused investors should feel pretty comfortable buying Chevron.
4. TotalEnergies weaves in a new business line
Rounding out the integrated energy giants on this list is TotalEnergies (TTE 0.36%), which is a French energy giant. Like Exxon and Chevron, it has a large and diversified business. However, like its European peers, it tends to carry more debt and cash than its U.S. counterparts. It is financially strong, but more debt and cash isn't the same as just having a low level of debt.
That said, TotalEnergies stands out in an important way: It is using cash flows from its oil and gas operations to invest in electricity and clean energy businesses. Thus, it is an energy stock with a clean energy twist. That makes TotalEnergies and its lofty 6.3% yield an attractive option for those that believe clean energy is a long-term growth platform.
Note that U.S. investors have to pay French taxes on the dividends here, some of which can be claimed back come April 15.
5. Occidental Petroleum wants to play with the big boys
There's one more interesting option in the integrated energy space, but it is at the lower end of the market cap spectrum. Occidental Petroleum (NYSE: OXY) has a market value of around $40 billion and a dividend yield of roughly 2.3%. Neither of those figures are standouts relative to fellow U.S. integrated energy giants like Exxon and Chevron.
However, Occidental has big aspirations as it looks to grow its integrated energy business via acquisition. And given its relatively small size, growth will be easier to come by since it takes less sizable deals to move the needle. Notably, Warren Buffett helped Occidental outbid Chevron on a deal not too long ago and Berkshire Hathaway remains a large investor in the stock. (That said, Buffett also owns Chevron.)
6. Devon Energy is focused on oil and the United States
Some investors, however, aren't looking for a diversified energy investment. They may have a strong conviction about the direction of energy prices and desire more direct exposure to the movements of oil and natural gas. If that sounds like you, you may want to consider Devon Energy (NYSE: DVN).
Devon is a large onshore U.S. driller with material exposure to some of the most important energy-producing regions in the country. Recently the company has been focused on growing via bolt-on acquisitions, further enhancing its scale and expanding its geographic reach.
The dividend yield is around 3%, but the real story here is going to be the impact that commodity prices have on the company's financial performance.
7. ConocoPhillips takes on the world
If the idea of focusing on a pure-play energy driller sounds good but you want a bit more geographic diversification, then take a look at ConocoPhillips (NYSE: COP). This company is focused on exploration and production, but its portfolio includes the United States and 14 other countries, with operations that span from the onshore to the offshore.
The stock has a 2.3% yield, and the company has a long history of supporting its dividend through good times and bad -- although the payout does fluctuate with energy prices.
8. Enterprise Products Partners sidesteps energy volatility
So far, this list has included companies with direct exposure to energy volatility. But there's one segment of the energy sector that largely avoids that exposure -- the so-called midstream. Businesses like master limited partnership (MLP) Enterprise Products Partners (NYSE: EPD) own the energy infrastructure that helps to move oil and natural gas around the world. These businesses largely charge fees for the use of the assets.
Enterprise is one of the largest players in North America and has a solid balance sheet, a well-supported distribution, and a lofty 6.9% distribution yield. That yield is supported by a distribution that has been increased annually for 26 consecutive years, which makes this a great option for income seekers. However, the yield will likely make up the lion's share of total return.
9. Enbridge brings in the clean (energy)
Enbridge (NYSE: ENB) is another North American midstream giant, owning assets like pipelines that are integral to the world's energy markets regardless of the price of energy. It shares many of the positive traits that support Enterprise as an investment and it has a generous dividend yield of 6%.
That said, there are two additional facts that investors need to understand here. First, Enbridge is Canadian so U.S. investors have to pay Canadian taxes on dividends and their dividends will fluctuate along with exchange rates.
Second, and more importantly, Enbridge is, like TotalEnergies, already starting to diversify its business into clean energy assets. If you like the idea of that, Enbridge will probably be a better option for you than Enterprise.
Image source: Getty Images.
10. Go all in with an oil ETF
This list has offered up various ways to invest in oil and natural gas stocks, ranging from diversified energy companies to pure-play drillers to midstream options that avoid energy price risk. But what if you just want exposure to energy prices?
For that, you might want to consider The United States Oil Fund LP (NYSEMKT: USO). This exchange-traded product is "designed to track the daily price movements of light, sweet crude oil." It isn't a direct investment in oil, it merely seeks to track oil price moves. However, if that is what you are looking to do, it could be a good, though inherently high-risk, option for you.
Lots of energy options for lots of energy investors
The truth is that there is no right or wrong way to invest in the energy sector. It is all about personal preference, and even then there are nuances to consider. For example, Exxon and Chevron could be viewed as interchangeable businesses by some while others might see Chevron's near-term headwind as creating a value opportunity.
That's why this list has 10 different investment options on it, even though some of the differences are subtle. If you are looking for an energy stock to buy right now, there's likely to be at least one investment here that will work for your specific situation.
