It might sound odd to put the words "energy stocks" and "reliable dividends" in the same sentence. After all, the energy sector is known for being highly volatile thanks to the top- and bottom-line impact of highly volatile oil and natural gas prices. However, ExxonMobil (XOM +1.75%) and Chevron (CVX +3.31%) have both proven that they know how to navigate the energy commodity cycle while still rewarding investors with reliable dividend growth.
If you have $500 available to invest that isn't needed for monthly bills or to pay down short-term debt, these two energy-focused dividend stocks might make great stock buys. Here's what you need to know.
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What do Exxon and Chevron do?
Exxon and Chevron are both integrated energy companies. That means they operate in the upstream (energy production), midstream (pipelines), and downstream (chemicals and refining) segments of the broader energy industry. Each segment of the industry performs differently through the energy cycle, helping soften the impact of swings in oil and natural gas prices.
The big highlight of their ability to handle the ups and downs in commodity prices is their respective dividend streaks. ExxonMobil has increased its dividend annually for more than 40 years. Chevron's streak is well over 30 years. Those are incredible results -- peers Shell, BP, and TotalEnergies don't come close to that level of consistency. In fact, BP and Shell both cut their dividend in 2020.
NYSE: XOM
Key Data Points
Now add the fact that ExxonMobil has a 3% dividend yield, while Chevron's is even higher at 4.1%. For reference, the S&P 500 index has a tiny 1.1% yield right now. If you are looking for dividend stocks, putting $500 into either of these energy giants would be an attractive option. That will buy you around three shares of ExxonMobil and two shares of Chevron.
NYSE: CVX
Key Data Points
The real secret sauce
What really makes ExxonMobil and Chevron so attractive, however, is their balance sheets. Their debt-to-equity ratios of 0.16 and 0.22, respectively, are the lowest of their peers and by a wide margin. This provides both companies the leeway to take on debt during oil downturns so they can continue to support their businesses and dividends through the weak patch. When oil prices recover, as they always have historically, the companies pay down debt.
This is why ExxonMobil and Chevron are no-brainer buys today, and, frankly, most of the time. That said, Chevron clearly has an income edge over ExxonMobil right now, which may make it the better choice for more conservative dividend lovers.
