News

Want Decades of Passive Income? 2 stocks to buy now and hold forever

Published

on

If you’re looking for passive income, you need to think about investing a little differently. Dividends become more important, to be sure, but so does the company’s ability to continue paying those dividends despite everything. In this regard, the energy giants ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) have proven themselves to be a buy and hold stock for dividend investors.

Exxon and Chevron: the basics

Exxon dividend yield it is around 3.2% today. Chevron’s is approximately 3.9%. Looking at yield alone, Chevron is probably the more attractive of the two integrated energy giants right now. Exxon has increased its dividend annually for 42 consecutive years, while Chevron has increased its dividend annually for 37 consecutive years. Both are very respectable trends and prove that each of these companies clearly cares about returning value to investors through dividends.

These trends are doubly impressive when you consider that Exxon and Chevron operate in the energy sector, which is known to be highly volatile. In fact, oil and natural gas prices are prone to rapid and dramatic price swings based on supply and demand, geopolitical developments, economic developments and even natural disasters. The duo tries to overcome the ups and downs of the industry by operating diversified businesses. This includes having operations that range from upstream (production), through midstream (pipelines), to downstream (chemicals and refining). They also have geographic diversification through global asset portfolios.

Before purchasing any of these companies, you need to understand that revenues and profits will be volatile due to the impact of energy prices on revenues and the bottom line. But, historically, Exxon and Chevron have proven that they know how to deal with fluctuations and that they think long term, focusing on the entire cycle and not just the current direction of the energy market.

The secret sauce is in the balance

One of the most important aspects of the dividend success that Exxon and Chevron have achieved lies in their balance sheets. At the end of the first quarter of 2024, Exxon had a debt-to-equity ratio of about 0.2. That’s low for any company, let alone an energy company. Chevron’s debt-to-equity ratio was even lower, at 0.14. The closest peer had a debt-to-equity ratio of around 0.4 or so.

XOM Chart of Debt to Equity Ratio

Being financially strong is great and is something investors should look for in every company they consider buying. But it’s doubly important in an industry that is known for its volatility. The deep drop in energy prices that occurred during the early days of the coronavirus pandemic is perfect proof of this.

The story continues

XOM Chart of Debt to Equity Ratio

The blue line in the chart above is the price of Brent crude, a major global oil benchmark. Note that as the price of oil fell in 2020, which crushed the revenues and profits of energy companies, Exxon and Chevron increased their leverage. The money they raised through debt sales was used to finance their businesses during the downturn and to continue paying dividends to investors. Meanwhile, as oil prices recovered, both companies reduced leverage, effectively preparing for the next industry recession. The key here is that, given their low leverage, Exxon and Chevron have ample room on their balance sheets to withstand the low points of the cycle.

The best time to buy?

As noted above, Chevron is probably the most attractive dividend stock right now due to its higher yield. That said, if you really want to buy at the “best” time, you should probably wait until the next big oil crisis, when most investors will sell energy stocks indiscriminately. During these turbulent periods, Exxon and Chevron can yield close to 10%. And if history is any guide, their long-term strategy has proven that they can weather crises while continuing to pay dividends well to investors. But even if you buy today, you can rest easy knowing that these two energy giants know how to handle the industry’s big swings.

Should you invest $1,000 in Chevron now?

Before buying Chevron stock, consider the following:

The Motley Fool Stock Advisor analyst team just identified what they believe is the 10 best stocks for investors to buy now… and Chevron wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia I made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $578,143!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular analyst updates, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 actions »

*Stock Advisor returns May 13, 2024

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Chevron. The Motley Fool has a disclosure policy.

Want Decades of Passive Income? 2 stocks to buy now and hold forever was originally published by The Motley Fool

Fuente

Leave a Reply

Your email address will not be published. Required fields are marked *

Información básica sobre protección de datos Ver más

  • Responsable: Miguel Mamador.
  • Finalidad:  Moderar los comentarios.
  • Legitimación:  Por consentimiento del interesado.
  • Destinatarios y encargados de tratamiento:  No se ceden o comunican datos a terceros para prestar este servicio. El Titular ha contratado los servicios de alojamiento web a Banahosting que actúa como encargado de tratamiento.
  • Derechos: Acceder, rectificar y suprimir los datos.
  • Información Adicional: Puede consultar la información detallada en la Política de Privacidad.

Trending

Exit mobile version