Better buy in September: ExxonMobil or a 50/50 split of Devon Energy and Occidental Petroleum?

The price of West Texas Intermediate (WTI) crude oil — the US benchmark — just dipped below $70 a barrel, sending ripples across the energy sector. Long-term investors may see low oil prices as an opportunity to get shares of quality energy stocks on sale.

There are plenty of ways to invest in oil and gas, such as an integrated major such as ExxonMobil (XOM -0.47%) or exploration and production (E&P) companies such as Devon Energy (DVN -1.76%) or Occidental Petroleum (OXY -3.18%).

Here’s what you need to know about these three companies to help you decide which dividend stocks are best for you.

Image source: Getty Images.

The safer game

ExxonMobil is the most valuable energy company in the US. It is one of the largest oil and gas producers in North America and has a massive downstream business that is larger in terms of production than many independent players such as Valero Energy. Exxon produces energy products such as gasoline, naphtha, heating oils, kerosene, diesel, aviation fuels, heavy fuels, chemicals and specialty products.

Exxon is generating plenty of excess cash to aggressively buy back its own stock, raise its dividend, and invest in low-carbon opportunities like carbon capture and storage, hydrogen, and more.

Exxon has paid and increased its dividend every year for 42 consecutive years — a period that includes several industry downturns. Exxon currently yields 3.3% — which is right around the energy sector’s average yield, but significantly higher than S&P 500 yield of 1.2%.

The company has done an excellent job of improving its balance sheet by paying down debt, which set the stage for its $60 billion acquisition of Pioneer Natural Resources.

Add it all up, and Exxon is one of the most well-rounded energy stocks to buy right now.

Two aggressive E&Ps around 52-week lows

Occidental Petroleum — commonly known as Oxy — and Devon Energy lack Exxon’s downstream assets and diversification. They are also quite concentrated in terms of production, particularly in the North American shale fields. These characteristics make both companies more sensitive to oil and gas prices.

To their credit, Oxy and Devon have built impressive asset portfolios with low production costs and strong margins when oil prices are high. Both stocks are likely to outperform Exxon and other major integrated companies during bullish periods and underperform the sector during oil price downturns. The following chart shows that Exxon has kept up with the S&P 500 year to date and handily beat the energy sector, while Oxy and Devon are now down on the year.

^ SPX data by YCharts

Oxy and Devon pay dividends, but are not as reliable as Exxon in generating predictable passive income. Oxy cut its dividend to a penny per share per quarter in 2020 and has since made modest increases to bring the dividend back to $0.22 per share per quarter for a 1.6% yield.

Devon pays a regular dividend and a variable dividend that fluctuates based on the performance of its business. As of 2019, annual dividend payments have been up to $0.35 per share and up to $5.17 per share in 2022. The following table shows total annual dividend payments for the past five years and the average price of WTI crude oil in that year, which gives a rough idea of ​​what to expect in passive income.

Data sources: US Energy Information Administration, Devon Energy.

Short-term dividend payments could be lower as Devon works to integrate its $5 billion acquisition of Grayson Mill Energy. Devon’s realized price may also differ from the spot price based on hedging contracts and other factors.

All three stocks are worth buying now

Exxon is a simple way to invest in the oil space and may be the better choice for risk-averse investors, those new to energy stocks, or anyone looking for a steady stream of passive income.

However, a 50/50 split of Oxy and Devon has more upside potential if oil prices stabilize and especially if they rise.

Ultimately, the decision comes down to personal preference, risk tolerance and the best fit for your portfolio. For some investors, all three stocks may be worth buying now.