2 Energy Dividend Stocks to Buy -- and the Risk Behind Each Payout

Dividends and energy can be a complicated mix, given the energy sector's inherent volatility. You need to get a better understanding of a company's business before you buy an energy dividend stock. For most investors, a boring industry giant like ExxonMobil (NYSE: XOM) will likely be a better pick than an upstream-focused company like Devon Energy (NYSE: DVN), even after Devon's huge 33% dividend hike. But there are still reasons why some might prefer Devon.

Devon Energy's dividend increase is probably sustainable

To be fair to Devon Energy, the dividend increase it initiated in 2026, raising the quarterly payment from $0.24 per share to $0.32 per share, wasn't directly tied to oil prices. The move came after Devon completed the acquisition of Coterra, which materially increased the size of Devon's business. Presumably, the board believes the new level is sustainable, as evidenced by the increase being applied to the "fixed" dividend.

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Devon has a history of adding a variable amount based on its financial results. In the past, when oil prices were high, the variable dividend sometimes exceeded the fixed dividend. This fact highlights the benefit and risk of buying Devon and its 2.4% yield.

If the variable dividend is added in again, you could collect a very large income stream. But that income stream is leveraged to oil prices. This might be exactly what you are looking for, but you have to go in understanding that the variable portion of the dividend will shrink, or even go away, as soon as oil prices start to decline. Devon is a well-respected energy company, but its production focus materially changes the game for dividend investors.

DVN Dividend data by YCharts

ExxonMobil: Boring and reliable

Exxon produces energy, too, but it also transports it and processes it into chemical and refined products. It is one of the world's largest energy companies and has exposure to the entire energy value chain, which helps soften the typical swings in oil prices. It also has a very strong balance sheet, which gives management the leeway to add debt during industry downturns to support its business and dividend until energy prices recover.

Exxon's big goal is to be consistent. And that shows up clearly in its dividend, which has been increased annually for 43 consecutive years. The dividend yield is 2.7%. There have been times when Devon's yield has far surpassed Exxon's. And Devon's recent dividend hike is much larger than Exxon's last increase (4%). However, if dividend consistency is important to you, Exxon has a hard-to-beat track record.

Understand your energy dividend stocks before you buy

That's not to suggest that Devon is a bad investment compared to Exxon. If what you are looking for is a hedge against rising oil prices, Devon's variable dividend could be exactly what you are looking for. But Exxon's goal of providing a consistent, growing dividend over time is likely to be more aligned with that of a dividend investor than Devon's goal of returning extra value when oil prices are high.

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