The Smartest High-Yield Oil Stock to Invest $500 in Right Now

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The Smartest High-Yield Oil Stock to Invest $500 in Right Now

Over the past year, the price of Brent Crude, a key global oil benchmark, has been as low as $70.31 and as high as $93.12. Over the past three years, the swing from peak to trough was even greater, with the low at $69.53 and the high at a whopping $133.18. Talk about a roller-coaster ride! This is why the smartest oil stock for most investors right now will be reliable industry giant Chevron (NYSE: CVX).

Before getting into Chevron’s business, it is worth looking at one of the biggest benefits investors get from owning the stock: its dividend. The

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is around 4% right now, which is notably above the energy industry average of 3.3% and the S&P 500’s average of 1.2%. The dividend backing that high yield has been increased annually for 37 consecutive years. Note that this includes hikes when oil was trading at $133 and when it was trading at $69, or lower.

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Image source: Getty Images.

Those dividend stats alone prove just how reliable a company Chevron is. And, in fact, that might be enough to get

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to buy this oil giant. But there’s more to like here than just the yield. That’s where the business comes in.

Chevron is what’s known as an integrated energy company, which means it has operations across the energy sector. That includes energy production (the upstream), energy transportation (the midstream), and chemicals and refining (the downstream). Each of these segments operates a little differently, and having all three in the portfolio helps to soften the peaks and valleys inherent to the commodity driven energy sector. It’s also worth noting that 75% of Chevron’s oil investments have a break-even point that is below $50 per barrel, which gives it a lot of operational leeway.

On top of that, Chevron has an investment-grade-rated balance sheet. That alone, however, doesn’t do justice to the importance of the company’s financial strength.

Chevron has been around a very long time and is well aware of the volatility of the sector in which it operates. That’s why it has created a diversified business, so it can better weather the inherent ups and downs it will face. But the real key to the company’s ability to continue rewarding investors with dividend increases — even when oil prices swing wildly — is its balance sheet.

When times are good, Chevron keeps its leverage low. Right now the company’s debt-to-equity ratio, a measure of leverage, is around 0.17 times. It is one of the lowest levels of leverage among the company’s closest integrated energy peers. The company is, basically, preparing for what it knows is coming: another oil downturn. Management doesn’t know exactly when, but it knows very well that the industry is volatile and lower oil prices are almost certain to arrive eventually.

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When that ******* does arrive, Chevron will have the financial leeway to take on more debt. That will, of course, increase leverage, but it will also allow the company to keep funding its business and paying a growing dividend to shareholders. The energy giant is comfortable taking on additional leverage right when it appears most risky to do so because it knows that oil prices have always recovered, historically speaking. And, when they do, Chevron will pay down debt and reduce leverage.

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data by

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This isn’t particularly unique, since other energy companies do the same thing. However, Chevron’s relatively low leverage compared to its peers puts it in a very strong position right now.

The only company with a stronger balance sheet is ExxonMobil (NYSE: XOM). But Exxon’s yield is much lower at 3.3%. So, from a risk/reward standpoint, Chevron looks like a more attractive dividend stock in the oil space right now.

No company is perfect, and Chevron comes with its own list of warts. For example, its proposed acquisition of Hess could fall apart because of Hess’ existing relationship with Exxon. That has some investors worried about Chevron’s business.

However, for long-term dividend investors with $500 or $5,000, Chevron looks like a good balance between risk and reward. All in, it is the kind of oil company you can hold through the entire energy cycle while still sleeping well at night.

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a

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recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $368,053!*

Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,533!*

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: if you invested $1,000 when we doubled down in 2004, you’d have $484,170!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

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*Stock Advisor returns as of November 18, 2024

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has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a

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was originally published by The Motley Fool

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#Smartest #HighYield #Oil #Stock #Invest

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