Three such companies are:
- Chevron, and
All three have shown investors that dividends remain management’s priority even during hard times, like the recent pandemic. As of this writing, Exxon’s dividend yield is around 3.9%, Chevron’s is about 3.8%, and TotalEnergies’ is nearly 6% — all of which are significantly higher than what you could receive from an S&P 500 Index fund.
The Case for Exxon and Chevron
Exxon and Chevron are two American energy giants that share many similarities. Both operate globally, focusing primarily on oil and natural gas operations.
By market cap, Exxon is the world’s largest non-government-owned energy company, and Chevron is a close second (in the United States) and is the third largest energy company in the world.
Exxon and Chevron have increased their dividends annually for 40 and 35 years, respectively. Based on their dividend histories, these energy companies are known as Dividend Aristocrats — an elite group that includes Lowe’s, S&P Global, and Target.
Given the volatility in oil prices over past decades, the consistency of annual dividend increases is impressive. Most notable is that they have continuously rewarded investors, even during numerous industry downturns. For example, many companies paused dividends during the pandemic, but not Exxon nor Chevron.
Each could pay shareholders an annual dividend because of their strong balance sheets, which they lean on in times of hardship. This commitment and financial strength make both Exxon and Chevron worth owning when the financial goal is passive income.
Shares of Exxon are up over 40% year to date, and Chevron shares are up nearly 25%. But the good news doesn’t stop there. We ran the numbers on Exxon and were surprised to discover that fair value sits an additional 21.3% higher – at $108.76 – than where it lies today. Chevron offers potentially an even better bet with its intrinsic value lying at $201.16, suggesting as much as 36.5% upside.
TotalEnergies differs from Exxon and Chevron; the company is moving further into the clean energy sector — although it is still investing in oil and, more heavily, in natural gas.
Management stated the business goal is to cut oil from 55% of the business in 2019 to 35% in 2030, including 5% from biofuels. Over this period, natural gas will increase from 40% to 50%. For clean energy, the company plans on tripling the size of its electricity division from 5% to 15%.
TotalEnergies does not have the same lauded dividend history as the two energy giants above, but its historical dividend payouts are still nothing to sneeze at. The company has been paying out a dividend for 28 years, and unlike its European peers, Shell and BP, TotalEnergies did not cut its dividend during the pandemic. So, if you’re interested in a passive income energy stock committed to a cleaner future, TotalEnergies is a solid bet.
It is worth noting that TotalEnergies is a French company, which will influence dividend payouts. You may need to pay French taxes (via an IFU), but those costs can be clawed back on your U.S. tax return. Also, as exchange rates shift, you will see slight variations in your quarterly payouts.
Year to date, shares of TotalEnergies are down nearly 1.5% but are up 16% over the past year. We see an additional 39.9% upside to $68.68 per share based on a discounted cash flow forecast analysis.
Is Now the Time to Buy Shares of XOM, CVX, or TTE?
Exxon and Chevron have shown their ability to navigate volatile environments, TotalEnergies is the most undervalued based on cash flows, and all three have the potential create long-term value for shareholders. If you’re wary, price averaging may be the wisest approach.