Is Chevron the best energy stock for you?

There are many ways to invest in the energy sector, but one of the most attractive companies is: chevron (CVX -0.49%). This industry giant won’t appeal to every investor, but it offers a strong combination of great features that will likely be a good fit for many investors. Here’s why Chevron may be the best energy stock for you.

1. Chevron is highly diversified

Chevron’s market capitalization is approximately $280 billion. Sure, there are bigger energy companies, but not many. However, size alone is not a sufficient reason to acquire a company. Fortunately, Chevron is not only large, but also vertically integrated. In other words, they do everything from producing oil and natural gas (upstream), to moving these energy commodities around the world (midstream), to processing them into fuels and chemicals (downstream). In addition, Chevron’s operations span the globe, adding geographic diversification to its business mix.

Being large and diverse in the energy sector is valuable. The prices of oil and natural gas, and the products into which they are processed, are highly volatile. As a simple example, upstream profits would be hit hard by lower oil prices, but because oil is an input cost, the downstream parts of Chevron’s business could actually perform better. Another potential benefit could come from focusing on producing more in lower-cost regions, such as the onshore regions of the United States, to take advantage of differences between energy markets. .

Investing in a concentrated manner can yield greater returns in a shorter period of time. However, if you intend to hold energy stocks for the long term, owning a large, diversified business like Chevron can help smooth out the peaks and troughs inherent in a highly cyclical industry. .

2. Chevrons are built like tanks

The foundations that support Chevron’s scale and diversification are also noteworthy. Too much debt can lead even the most well-structured business astray because it reduces a company’s flexibility to deal with adversity. Fortunately, Chevron has one of the strongest balance sheets in the energy sector. In terms of numbers, the debt-to-equity ratio is a very modest 11.5%. Considering the cash on the company’s balance sheet, its net debt ratio is just 7.3%.

CVX Debt Equity Ratio Data by YCharts

Chevron is well prepared to handle the next industry downturn. And, as in the past, we will rely on our balance sheet (by adding debt ) will happen. If energy prices recover as they have in the past, Chevron could reduce its debt again in preparation for the next economic downturn. Owning a financially strong company is a blessing for every investor.

3. Chevron pays well.

Chevron’s current dividend yield is only about 4%.it’s way more than what you get S&P500 Investors who value income should highly value index funds. That said, given the volatile nature of the industry, Chevron’s yields are often much higher during energy downturns. You could probably wait and get a more attractive yield, but it’s still a stock worth considering if you want to add energy exposure today.

CVX data by YCharts

One of the biggest reasons to consider Chevron is its financial strength and diversified business. These factors have allowed Chevron to weather the ups and downs of the oil industry relatively smoothly while continuing to reward shareholders with regular dividend increases. Chevron has increased its dividend for his 36th consecutive year. This is a very impressive number considering the volatile nature of the energy sector and shows that the company believes it is important to return value to shareholders regardless of the market conditions they are facing. It’s proven.

Perfect for conservative dividend investors

The ideal candidate to own Chevron is a conservative dividend investor looking to build a diversified portfolio. There are energy stocks that offer higher yields, but they often require taking on more risk. Some energy stocks are exposed to fluctuations in energy prices, which obviously means they are riskier. Chevron pretty much cuts the right middle path between risk and reward, offering a decent income stream and a conservative business position. All but the most aggressive investors should find this attractive.