An inflation spike coming out of the coronavirus pandemic helped to boost the profits of energy companies. But after hitting a peak, oil and natural gas prices have come back down. That has taken the wind out of the sector's sails, but one of the industry's largest competitors -- Chevron's (CVX -0.83%) -- performed even worse than its closest competitor and is still down over 15% from its highs.
There's still a chance to buy the stock while it has a well above average yield. Here's what you need to know.
What goes up always goes down
Oil and natural gas are commodities prone to large and often rapid price swings. So the ups and downs around the pandemic aren't really that unusual. Still, investors react to the price swings in fairly predictable fashion. When energy prices rise, Wall Street tends to boost the shares of oil and gas producers. The reverse happens when energy prices fall.
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That's the big picture for Chevron's price decline since the oil price rally turned into an oil price decline. However, there are some other factors at play with this energy industry giant. Notably, a large acquisition (Hess) got stuck in court because of complaints about the deal from Chevron's competitors. And Chevron's investment in Venezuela is an off again/on again political headache. Both issues were negatives not too long ago, helping to keep Chevron's shares depressed. Even more so than its closest peer, ExxonMobil.
The end result is that, even now, Chevron is offering an attractive investment opportunity. Notably, the stock's dividend yield is 4.4%. Exxon's yield is 3.7%. The average energy stock's yield is 3.2%. And the S&P 500 index's yield is a scant 1.2%. This is an opening you won't want to miss if you are looking to invest in the energy sector.
Chevron is built to survive the energy cycle
For starters, Chevron's company-specific headwinds are abating. Its deal to buy Hess has been approved and completed. And while Venezuela will always be a sore point, the headwinds have evened out around this investment for the time being. Thus, the overhang from these issues is largely gone, which helps to explain Chevron's recent stock price rally, which has been stronger than the rally of Exxon's shares.
What's more, it is important to keep in mind that the outsized yield is on very solid ground. Chevron has increased its dividend annually for a huge 38 consecutive years. And it has one of the strongest balance sheets among its integrated energy peers. This diversified and financially strong energy giant is built to survive the inherent ups and downs in the energy patch.
There's still time to act, if you act quickly
To be fair, there will always be risk here because of the nature of the energy sector. But the reward today looks very attractive, given the relatively attractive yield Chevron is offering. If you are looking for an energy investment, this one should be close to the top of your buy list. And given the strength of Chevron's business and the success it has had navigating oil price volatility, it is the kind of energy stock that even a conservative dividend investor can buy and hold for the long term.
