The Optimal High-Return Oil Shares to Allocate $500 Investment Immediately
Over the past year, the cost of Brent Crude, a significant global oil marker, has fluctuated between $70.31 at its lowest and $93.12 at its peak. Over the past three years, this fluctuation has been more prominent, with a low of $69.53 and a high of an astounding $133.18. It's like a thrilling roller coaster ride! This volatile market makes a stable, established giant like Chevron (CVX dropping 0.36%) an intelligent investment choice for many investors at present.
Chevron: An Appealing Prospect
Before delving into Chevron's operations, let's discuss one of the significant advantages of owning its stock: the dividend. The dividend yield currently stands at approximately 4%, significantly higher than the energy industry average of 3.3% and well above the S&P 500's average of 1.2%. This high dividend yield has been consistently increased for 37 consecutive years - a feat rarely achieved even in times when oil was selling for either $133 or $69.
These dividend statistics alone demonstrate the reliability of Chevron as a company. In fact, they might be sufficient to attract long-term dividend investors to this oil titan. Nevertheless, there are more reasons to value Chevron beyond its yield. That's where its business comes into play.
Chevron is classified as an integrated energy company, meaning it operates across various sectors within the energy industry. These sectors include energy production (upstream), energy transportation (midstream), and chemicals and refining (downstream). Each of these segments operates differently, and having all three in the mix helps to mitigate the significant price fluctuations inherent to the commodity-driven energy sector. Plus, 75% of Chevron's oil investments have a break-even point below $50 per barrel, giving it substantial operational flexibility.
Beyond its diversified operations, Chevron boasts a top-notch financial profile. Its balance sheet is rated investment-grade, although that's just the tip of the proverbial iceberg in terms of the company's financial strength.
Chevron: Navigating the Market like a Pro
Chevron, with its decades of experience in this unpredictable sector, is well-equipped to navigate the inevitable ups and downs. That's why it has established a diverse business portfolio. However, the true key to its ability to continue offering dividend increases, even with wildly fluctuating oil prices, is its strong financial profile.
In good times, Chevron maintains a low level of debt. At present, the company's debt-to-equity ratio – a measure of financial leverage – is just 0.17 times. This is one of the lowest levels among Chevron's closest integrated energy industry peers. The company is essentially preparing for the next oil downturn, which is inevitable, albeit unpredictable in terms of timing.
When the downturn inevitably arrives, Chevron will have the financial flexibility to borrow more money. This will temporarily increase its debt and, consequently, its leverage. Yet, it will also enable the company to continue funding its operations and distributing growing dividends to shareholders. Chevron is comfortable taking on additional debt during potentially risky times because it knows from historical records that oil prices have always recovered. And when they do, Chevron will pay down its debt and reduce its leverage.
While other energy companies operate in a similar manner, Chevron's relatively low leverage compared to its peers positions it favorably at the moment. The only company with an even stronger financial profile is ExxonMobil (XOM falling 1.05%). However, Exxon's yield is much lower at just 3.3%. As a result, from a risk/reward perspective, Chevron appears to be the more appealing dividend stock in the oil sector at present.
Lastly, Chevron may have its share of issues, such as the potential fallout of its proposed acquisition of Hess due to existing ties with Exxon. Some investors are concerned about Chevron's business prospects because of this. However, for long-term, risk-averse dividend investors with either $500 or $5,000, Chevron appears to be a sound, risk-to-reward balanced choice in the energy sector.
Investing in Chevron's stock can provide a stable income due to its high dividend yield, which is currently superior to the energy industry average and the S&P 500's average. This reliability, demonstrated by 37 consecutive years of dividend increases, makes Chevron an attractive option for dividend investors.
Chevron's financial profile is another reason why it's an intelligent investment choice. The company's strong balance sheet and low debt-to-equity ratio provide it with operational flexibility and financial strength, enabling it to navigate market fluctuations and continue distributing dividends to shareholders.
