Oil is a volatile commodity, a fact that needs to be taken into consideration when buying an oil-related stock. However, there are different ways to view this fact from an investment perspective. Chevron (CVX -0.26%), Devon Energy (DVN -0.03%), and TotalEnergies (TTE 1.10%) offer three very different ways to dip your toes into oil stocks if you have $200, or more, to put to work. Here's a quick look at each one.
1. Chevron covers all the carbon energy bases
Chevron is what is known as an integrated energy major. That means it invests in the upstream (oil and natural gas production), midstream (pipeline), and downstream (chemical and refining) segments of the broader energy industry. This diversification helps to even out earnings in what is a very volatile sector because each segment of the industry operates just a little bit differently. For example, when oil prices are low and the upstream business is suffering, the downstream businesses will be benefiting from low input costs.
While Chevron's diversification across the energy sector doesn't mitigate the impact that oil price swings have on the top and bottom line, it does soften the swings. That, along with the company's focus on having a strong balance sheet, have helped it survive through industry downturns while continuing to reward investors with dividend increases all along the way. Chevron's dividend has been increased annually for 37 consecutive years, which is pretty incredible given the wild oil price swings that have occurred over that span. If you want a reliable, high-yield energy stock (Chevron's yield is 4% today), Chevron is probably one of the best options out there.
2. Devon Energy is anything but reliable
While Chevron is focused on consistency, Devon Energy offers pretty much the exact opposite. This company is focused on the U.S. upstream sector, producing oil and natural gas in key domestic energy basins. With no other businesses to offset the inherent volatility of selling these commodities, Devon's top and bottom lines are highly variable. That, in turn, leads the stock to rise and fall in dramatic fashion, moving right along with the big swings in energy prices. While it isn't a great idea to try to time markets, if you have a constructive view of oil prices, Devon Energy is likely to lead to more upside than investing in Chevron would. That said, remember that there's more downside risk, as well.
While this big-picture dynamic is likely to be the driving force when making an investment in Devon Energy, there are other factors of note. Devon Energy is a well-respected company with operations in multiple regions of the United States. It has an investment-grade-rated balance sheet, 10+ years of drilling inventory, and a low break-even point, so it can make money even if oil prices are a little weak. So buying Devon Energy isn't like throwing caution to the wind. It is more like making an educated bet on higher energy prices that won't likely fall to zero if you are wrong.
3. TotalEnergies is for investors that want to hedge their bets
TotalEnergies competes directly with Chevron, since both are globally diversified integrated energy giants. Chevron is probably a better choice for most investors given that it has a more impressive dividend history. However, TotalEnergies has one very important thing that Chevron largely lacks: material exposure to electricity and clean energy. The company's integrated power division, as it is called, made up around 10% of adjusted net operating income through the first nine months of 2024. This figure grew 20% year over year.
TotalEnergies has made a material commitment to clean energy, which offers a hedge of sorts for investors that are worried about the future of carbon fuels. But what's really notable about this is that TotalEnergies made this shift without cutting its dividend, which is what European peers BP (BP 1.16%) and Shell (SHEL 1.08%) did when they made similar clean energy commitments in 2020. Even more interesting, BP and Shell have started to walk back those commitments while TotalEnergies has continued to push forward. With an attractive 5.5% dividend yield, TotalEnergies is a good choice for investors looking for more than just oil.
Three ways to play oil
There's no single right way to invest in oil stocks -- use the way that makes the most sense to you. Chevron is a great choice if you simply want to buy and hold a diversified energy stock with an attractive yield and reliable dividend. Devon Energy is appropriate for more aggressive investors that think oil prices are heading higher. And TotalEnergies is a good call for investors that want oil exposure, but think that clean energy is going to be an increasingly important part of the global energy pie.
