2 No-Brainer High Yield Oil Stocks to Buy for $500 Right Now

Oil prices are well above post-pandemic highs. All sorts of geopolitical events and supply/demand fluctuations have occurred over the past four years or so.

All through her Chevron (CVX 0.38%) and TotalEnergies (TTE -0.41%) they stuck to their unique business playbooks. There’s no reason to think that will change, and both high-yielding oil stocks are as attractive today as they were when oil prices were higher (and when they were lower). That’s because what you’re really buying with Chevron and TotalEnergies is a business model.

Here’s what you need to know about these two high-yielding oil stocks, even if you only have $500 to invest.

1. Chevron is strong through the energy cycle

Chevron is one of the largest integrated energy companies on the planet. This means that its business is globally diversified and spans the upstream (power generation), midstream (pipelines) and downstream (refining and chemicals) segments of the energy sector. This diversification helps smooth out the peaks and valleys of the inherently volatile energy industry. Oil prices will still be the dominant factor to watch, but the ride investors take won’t be as dramatic as owning, say, a pure-play oil rig.

That alone doesn’t differentiate Chevron from its closest peers, which are all integrated energy companies. But when you combine this information with the strength of Chevron’s balance sheet, you begin to see that there is indeed a material difference here. Specifically, Chevron’s debt-to-equity ratio is 0.15. That’s low by almost any standard, but it also happens to be the lowest debt-to-equity ratio among the company’s closest peers.

CVX debt-to-equity ratio data by YCharts.

That’s a big deal. It means Chevron has more leeway to take leverage in bad times so it can sustain its business and dividends through the cycle. As the chart above highlights, when oil prices fall, Chevron adds leverage to beat the recession. When the price of oil recovers, it reduces leverage to prepare for the next drop in oil. That’s how Chevron managed to increase its dividend every year for 37 consecutive years.

Add in today’s generous 4.6% dividend yield, and you can see why, despite the low oil price, you might want to buy Chevron. In fact, the best time to buy it is often when oil prices are weak.

2. TotalEnergies is preparing for the future today

TotalEnergies is a completely different story. Like Chevron, it is an integrated energy company. Like Chevron, it has shown a strong commitment to its dividend, getting behind it in the early days of the coronavirus pandemic, even as European peers. BP and Shell both cut their dividends. And like Chevron, TotalEnergies has an attractive dividend yield of 5%. (TotalEnergies is a French company, so US investors must pay French taxes on the dividends it collects, although they can generally be claimed when investors file their US taxes.)

The really big difference between TotalEnergies and its closest peers is that it has moved aggressively to diversify its electricity business with a healthy focus on clean energy. Basically, management recognizes that clean energy will be an increasingly important part of the global energy pie in the future. It is now moving to adjust its portfolio so that it can use its oil profits to pay for diversification efforts.

To be fair, BP and Shell both made similar plans. But neither really took the transition as seriously. Perhaps more importantly, both used the turnover as an excuse to cut their dividends. Just to reiterate the key fact: TotalEnergies made the same change without the dividend cut.

That’s not to say that TotalEnergies is suddenly a clean energy company — that’s not the case at all. Its “integrated power” business accounts for only about 10% of revenues. Still, that’s a big change in a short amount of time, and it shows how serious the company is now about preparing for a very different energy future.

If you want exposure to the oil and gas sectors, but also want to hedge your bets a bit, TotalEnergies is probably a good choice for your portfolio. The high yield is just the icing on the cake.

Energy stocks are volatile – you should be strategic

There’s no getting around the fact that energy stocks tend to rise and fall with oil and natural gas prices. This means that low oil prices often open up the best opportunities for investors to buy energy stocks. But if you’re going to invest in the sector, you really need to think about the bigger picture.

Financially strong Chevron has proven it can ride the cycle by continuing to reward dividend investors well. TotalEnergies has shown its commitment to the energy transition and to paying investors a reliable dividend. Both stocks have long-term appeal due to their sustainable business models.