Paper or plastic? Cheese or pepperoni? Chevron (CVX +1.36%) or ExxonMobil (XOM +2.35%)? These are some of the perennial questions that vex people the world over. OK, not really. The only really vexing question here is whether dividend investors should buy Chevron or ExxonMobil.
Let's look at what you need to consider before you make that final call.
The business models are similar
The key factor here, and why a comparison between Chevron and ExxonMobil makes sense at all, is because both of these companies use the integrated business model. That means that they have exposure to the upstream (energy production), the midstream (pipelines), and the downstream (chemicals and refining). This balanced approach helps to soften the inherent peaks and valleys in the normally volatile energy sector.
Image source: Getty Images.
To be fair, neither company can avoid the normal swings of the energy sector. Oil and natural gas prices change quickly and materially. Geopolitical issues, supply/demand dynamics, and economic activity can all push prices around in dramatic fashion. The vertically integrated nature of Chevron and ExxonMobil allows them to survive the ups and downs a little more easily than a company that is focused solely on energy production. Thanks to their integrated business models, either company is a good long-term call if you are looking for an energy stock.
Both are financially strong
Along with the inherent strength of Chevron and ExxonMobil's business models, each company is also built on a very strong financial foundation. That is highlighted by their balance sheets, where Chevron has a debt-to-equity ratio of 0.22 times and ExxonMobil has even lower leverage at 0.16 times. Both of those debt-to-equity ratios are very low. However, the key isn't that they are low, it is what this allows these energy companies to do that's important.
NYSE: CVX
Key Data Points
Knowing full well that energy prices will rise and fall over time, low leverage allows Chevron and ExxonMobil to add debt during downturns. That gives them the ability to fund their businesses and support their dividends during the inevitable hard times they will face. When energy prices recover, as they always have historically, debt is reduced in preparation for the next industry downturn.
Impressive dividend records all around
The proof that Chevron and ExxonMobil know how to survive the energy cycle while rewarding shareholders for sticking around comes from their dividend track records. ExxonMobil has the better record, with 43 consecutive annual dividend increases under its belt. Chevron's streak is a little shorter at 38 consecutive years.
Arguably, you could say that Exxon is a better dividend stock because of its longer streak of annual dividend increases. But really, the two stand toe to toe on this one, and buying Chevron wouldn't be trading down to a lesser dividend stock.
NYSE: XOM
Key Data Points
The number that could determine your decision
So these two are very similar businesses, with similar financial positions, and similar dividend histories. Where they differ most is dividend yield. ExxonMobil's dividend yield is 3.6% while Chevron's yield is a much higher 4.4%. If you are trying to maximize the income your portfolio generates, Chevron should be the stock you pick.
But some perspective is important here. For starters, the average energy stock's yield is 3.2%. Buying ExxonMobil wouldn't be a horrible decision. However, Chevron's yield is more than a full percentage point higher than the average, and it is roughly 20% above the yield offered by ExxonMobil. That's a material boost in income if you are a dividend investor.
No wrong choices here
All in, there are more similarities between ExxonMobil and Chevron than there are differences. You could just as easily argue that ExxonMobil is bigger, with a market cap of $470 billion versus Chevron's $300 billion, and that makes it a better buy.
If you want to add a diversified energy stock to your portfolio, either one will do. But if you want to maximize the income your portfolio generates, Chevron is the standout thanks to its higher yield today.
