Got $1,000? 3 Giant High-Yield Energy Stocks to Buy and Hold Forever

Key Points

• Oil and natural gas are commodities prone to material price swings that can happen very rapidly.

• Integrated oil giants have diversified businesses meant to soften the impact of energy price swings.

• Chevron and Exxon boast topnotch balance sheets, while TotalEnergies is eyeing clean energy.

• 10 stocks we like better than Chevron ›

If you are an income investor and have $1,000 to invest in the energy sector, the best place to start your search is with integrated energy companies. Three of these globally dominant companies stand out for their mixture of yield, safety, and diversification.

Here's why buy-and-hold investors will want to look at U.S. energy giants Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM), and maybe also French giant TotalEnergies (NYSE: TTE).

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Start with the integrated energy giants

The list of independent integrated energy giants isn't particularly long. It includes Chevron, Exxon, TotalEnergies, BP, and Shell.

Of this group, BP and Shell fall short on the dividend front because both cut their dividend in 2020 when they announced they were shifting toward clean energy. They have each walked back that pledge at this point, leaving investors with just a dividend cut. (More on this below with TotalEnergies.)

So if you care about dividend reliability, you should start with the three remaining energy companies.

Image source: Getty Images.

The integrated model is likely to be the best option for long-term income investors because it is meant to soften the peaks and valleys of the inherently volatile energy sector. Chevron, Exxon, and TotalEnergies each have exposure to the upstream (oil and natural gas production), midstream (pipelines), and downstream (chemicals and refining).

Each segment operates a little differently through the cycle, with the end effect of more stable financial performance through the cycle while still giving investors exposure to oil and natural gas.

Why U.S. energy giants lead the pack

If you are looking for the most financially conservative integrated energy companies to own, you want to start with Exxon and Chevron.

On top of their diversified business models, they each have industry-leading balance sheets. Exxon's debt-to-equity ratio is roughly 0.15, with Chevron having just a tick more leverage at 0.20. Their low leverage allows them to add debt during industry downturns to support their businesses and dividends. When commodity prices recover, they pay down leverage.

CVX Debt to Equity Ratio data by YCharts

This isn't to suggest that Shell, BP, and TotalEnergies are financially weak per se. These European giants tend to have more debt, but also more cash on their balance sheets. Still, that's not the same thing as simply having very little leverage.

The proof is in the dividends that Exxon and Chevron have paid over time, with Exxon's annual dividend streak up to 43 years and Chevron's at 38 years. Chevron's dividend yield today is the higher of the two, at nearly 4.4%. Exxon's yield is around 3.5%. Both yields are notably higher than the S&P 500's tiny 1.2% yield and the average energy stocks' yield of roughly 3.2%.

The most conservative investors will probably want to go with Exxon, but the risk posed by Chevron really isn't that much higher, and you get a material increase in yield. A $1,000 investment will net you about eight shares of Exxon and six shares of Chevron.

TotalEnergies adds a clean energy hedge

The one potential problem with Exxon and Chevron is that both remain focused tightly on oil and natural gas. Yet, the world is slowly shifting toward cleaner energy alternatives, notably including electricity.

In 2020, TotalEnergies joined BP and Shell in announcing a goal to include more clean energy in its business mix. What it didn't join in on was the dividend cuts that BP and Shell announced. TotalEnergies specifically explained at the time that it understood that the dividend was important to its shareholders. That makes it a better option than BP and Shell.

But it also makes TotalEnergies a strong choice for investors who want to hedge against the clean energy risk posed to oil-and-gas-focused companies. TotalEnergies has, if anything, increased its capital investment plans in the clean energy and electricity spaces, so it is doubling down on what it sees as the long-term future of power in the world. In 2024, the company's integrated power division made up roughly 10% of segment adjusted net operating income, up 17% year over year.

The one problem with TotalEnergies and its lofty 6.6% yield is that U.S. investors have to pay French taxes on the payment. So the yield you collect won't be quite as high as it seems, though you can claim a portion of the taxes you pay come April 15.

All in, however, if you would like a hedge against the shift toward clean energy, TotalEnergies is likely the best choice for you among the integrated energy giants. A $1,000 investment will buy around 16 shares of the French company.

These stocks are always strong buy-and-hold options

The best time to buy an integrated energy giant is probably during a deep energy downturn. That also happens to be the hardest time to buy Chevron, Exxon, and TotalEnergies because they will be deeply unloved. But they are all strong options throughout the energy cycle for those who want to buy and hold for the long term.

And right now, while energy prices are relatively weak, is a decent time for income lovers to step in, noting the high yields on offer from this trio.

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Reuben Gregg Brewer has positions in TotalEnergies. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends BP. The Motley Fool has a disclosure policy.