Source: PaxForex Premium Analytics Portal, Fundamental Insight
Chevron stands as one of the largest energy companies globally, boasting an impressive $270 billion market cap. In a competitive landscape alongside integrated majors such as ExxonMobil, Shell, BP, and TotalEnergies, investors may wonder why owning Chevron stock could be a preferable choice. The answer is unequivocally affirmative, and here's the essential insight.
Chevron, along with ExxonMobil, Shell, BP, and TotalEnergies, adheres to a common business model encompassing oil and natural gas production, transportation, processing, and sales. This comprehensive approach spans the upstream (drilling), midstream (pipelines), and downstream (chemical and refining) sectors. The strategic significance lies in the fact that distinct segments of the energy sector exhibit varied performance levels at different times, effectively mitigating the industry's inherent peaks and valleys. As an illustrative example, downstream businesses can thrive in the face of low oil prices, acting as a cost center for this particular segment of the industry.
As we delve deeper, Chevron presents certain nuances that might confer a competitive advantage over its peers, with subtleties likely holding paramount importance.
One noteworthy aspect that dividend investors are likely to observe is Chevron's dividend yield, standing at around 4.2%. While not the highest within its peer group - BP and TotalEnergies offer larger income streams - a crucial nuance comes into play.
TotalEnergies, despite having the highest yield in the group, is based in France, subjecting investors to foreign taxes on its dividends. While these taxes can be reclaimed by April 15, the process adds complexity to tax preparation, and there exists a cap on the total amount reclaimable. Thus, despite a seemingly superior yield, TotalEnergies may not be the optimal choice.
Another pivotal consideration is Chevron's impressive track record of increasing dividends for 36 consecutive years, second only to ExxonMobil's 41 years within the peer group. In contrast, both BP and Shell reduced their dividends during the COVID-19 pandemic, aligning with plans to boost investments in clean energy (TotalEnergies made a similar commitment without a dividend cut). For investors prioritizing stocks with growing dividends, Chevron emerges as a favorable option over its European counterparts. It's noteworthy that despite a higher yield, BP's dividend cut might deter many dividend-focused investors.
Moreover, Chevron holds a slight advantage over ExxonMobil. While opting for ExxonMobil isn't inherently misguided, Chevron's debt-to-equity ratio of 0.12 times outshines Exxon's 0.2 times. This distinction is particularly significant for ultra-conservative dividend investors, as Chevron has more flexibility to assume debt during energy downturns to sustain its business and dividends.
While there are numerous compelling reasons to favor Chevron, a noteworthy factor may dissuade certain investors—the global shift toward cleaner energy alternatives such as solar and wind power. Though this transition is anticipated to unfold gradually over decades, Chevron, alongside ExxonMobil, adheres steadfastly to its core strengths in oil and natural gas. While not entirely oblivious to the changing landscape, these companies haven't adopted an aggressively proactive stance in alignment with the evolving world. In contrast, BP, Shell, and TotalEnergies have demonstrated more assertive approaches.
It's essential to acknowledge that the commitment to cleaner energy strategies resulted in dividend cuts at BP and Shell. While both companies have scaled back their plans to some extent, if you foresee a rapid green future, Chevron might not align with your investment outlook. TotalEnergies, which maintained its dividend and sustained its clean energy initiatives, could be a more suitable alternative.
For existing Chevron shareholders, there's no imperative reason to sell and opt for another integrated energy major, unless environmental considerations strongly influence your decision. Forecasts from industry authorities such as the U.S. Energy Information Administration (EIA) and the International Energy Agency (IEA) suggest that demand for carbon fuels is expected to remain robust until at least 2050. Notably, within this timeline, coal usage is anticipated to decline, while oil and natural gas demand is projected to either stabilize or increase. Hence, Chevron appears well-positioned to meet energy demand for decades to come, with no immediate concerns about its future.
In summation, when evaluating the integrated energy sector, Chevron is more likely to be viewed as a buy for the majority of investors, and existing shareholders might not find a compelling reason to divest their holdings. While nuanced considerations may sway preferences toward specific stocks, Chevron stands out as an excellent starting point for investors seeking a reliable dividend stock.
As long as the price is above 139.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 141.97
- Take Profit 1: 146.00
- Take Profit 2: 150.00
Alternative scenario:
If the level of 139.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 139.00
- Take Profit 1: 137.00
- Take Profit 2: 134.00
