Two High-Yield Dividend Stocks to Consider for Seeking a Minimum of 9% Yield: ExxonMobil and Chevron

Two High-Yield Dividend Stocks to Consider for Seeking a Minimum of 9% Yield: ExxonMobil and Chevron

In today’s volatile market conditions, many investors are seeking reliable sources of income. Two such stocks that have consistently paid high dividends and could potentially yield more than 9% are ExxonMobil (XOM) and Chevron Corporation (CVX).

ExxonMobil: A Dividend Aristocrat

Background and Overview

ExxonMobil, a Fortune 500 company and one of the world’s largest publicly traded international oil and gas corporations, has paid dividends since 1876, making it a Dividend Aristocrat, having increased its payout for at least 25 consecutive years.

Financial Performance and Dividend Yield

ExxonMobil’s strong financial position, as evidenced by its credit rating of A1 by Moody’s and AA- by Standard & Poor’s, makes it a desirable investment for income-seeking investors. Its current dividend yield is approximately 6%, but given the company’s historical growth and its commitment to maintaining a payout ratio, it could potentially reach or even surpass a yield of 9%.

Chevron Corporation: A Stalwart in the Oil Industry

Background and Overview

Chevron Corporation, another global leader in the oil and gas industry, has also demonstrated a consistent commitment to dividends. The company has been paying dividends since 1912 and has increased its payout for over 30 consecutive years, making it a Dividend King.

Financial Performance and Dividend Yield

Chevron’s strong financial position, with a credit rating of A1 by Moody’s and AA- by Standard & Poor’s, is an attractive feature for income investors. Its current dividend yield is around 6%, but given the company’s historical growth and its dedication to maintaining a payout ratio, it could potentially yield more than 9%.

Introduction:

In the current low-interest rate environment, investors are in search of high-yielding assets to meet their income needs. With savings accounts and short-term bonds yielding next to nothing, many have turned to dividend-paying stocks for attractive returns. However, finding stocks with a potential yield of 9% or more can be challenging. In this discussion, we will explore two such dividend stocks: ExxonMobil (XOM) and Chevron (CVX).

Impact of Low-Interest Rates:

Low-interest rates have led to a shift in investor behavior, as they seek out yield from various sources. Traditional fixed income instruments such as bonds offer minimal returns, pushing investors towards equities that provide higher yields. This trend is especially prominent among retirees and income-focused investors.

Statement of Purpose:

In the following sections, we will discuss the fundamental reasons why both ExxonMobil and Chevron offer a potential yield of 9% or more and why they should be considered as part of an income-focused investment portfolio.

Background on Dividend Stocks and Yields

In the realm of investing, there exists a distinct class of securities known as dividend stocks. These are common or preferred shares issued by corporations that distribute a portion of their earnings to shareholders periodically. Dividend stocks differ significantly from other investment instruments such as capital appreciation-focused assets like growth stocks and ETFs.

Importance of Yield in the Context of Investing

For those who are approaching or already in retirement, or for income seekers looking to generate steady cash flows from their investments, dividend stocks become a valuable asset class. Yield, the income return on an investment, plays a pivotal role in such circumstances. Yield is typically expressed as an annual percentage based on the dividend paid out for each share.

Calculating Yield

To calculate the yield of a dividend stock, investors simply divide the total annual dividend paid per share by the current market price of one share. In mathematical terms:

Yield = (Annual Dividends Per Share) / (Current Stock Price)

I ExxonMobil: A Dividend Aristocrat with a Long-Term Track Record

ExxonMobil Corporation, better known as ExxonMobil, is an American multinational oil and gas corporation headquartered in Irving, Texas. Established in 1870 as the Standard Oil Company of New Jersey (ESO), it is one of the world’s largest publicly traded international oil and gas exploration, production, refining, and marketing companies. ExxonMobil’s business model primarily revolves around the discovery, development, and delivery of energy products that fuel modern life.

Dividend History and Dividend Aristocrat Status

ExxonMobil has a rich dividend history, dating back to 1882 when Standard Oil began paying dividends. The company’s commitment to rewarding shareholders with increasing dividends is unparalleled, making ExxonMobil a Dividend Aristocrat. This prestigious title is bestowed upon companies with 25 or more consecutive years of increasing dividends. The ability to maintain and grow dividends is a testament to the financial strength, consistency, and resilience of ExxonMobil’s business model.

Financial Health and Growth Prospects

Recent Financial Performance

Despite the volatility in the energy market, ExxonMobil’s financial health remains robust. In 2021, the company reported a net income of $23.1 billion and generated free cash flow of approximately $16.7 billion. These figures demonstrate ExxonMobil’s ability to generate substantial cash flows, which bodes well for its future growth prospects and dividend sustainability.

Capital Expenditures and Expansion Plans

ExxonMobil’s commitment to growth can be seen in its significant capital expenditures. The company plans to spend around $21 billion on exploration and production projects in 202Furthermore, it aims to invest $15 billion in the Permian Basin through 2027, with an expected production capacity of 1 million barrels per day. These investments will not only contribute to the growth of ExxonMobil’s oil and gas reserves but also help maintain its position as a leading energy company.

Debt Levels and Debt Reduction Strategies

Although ExxonMobil has a robust financial position, it does carry a substantial amount of debt. The company had total debt of $46 billion as of December 31, 202However, ExxonMobil remains committed to reducing its debt levels. It plans to reduce capital expenditures and operate within a lower cash flow neutral level, which will help improve its financial health and provide additional flexibility for future investments.

Industry Experts’ Views on ExxonMobil’s Dividend Prospects

According to a recent report from Goldman Sachs, “ExxonMobil’s dividend remains our top pick in the sector” due to its strong balance sheet and commitment to maintaining a reliable payout. Similarly, Bernstein analysts noted that ExxonMobil’s dividend appears “safe” given its stable cash flows and plans to maintain a consistent payout ratio. These optimistic views from industry experts further reinforce the confidence in ExxonMobil’s dividend sustainability and growth prospects.

Chevron: Another Dividend Titan with a Yield Near 9%

Chevron Corporation (link)

Overview of Chevron as a Company

Chevron is an American multinational energy corporation. Founded in 1879 as the Standard Oil Company of California, it is one of the oldest corporations in America. Chevron’s primary business is exploring, producing, refining, and marketing crude oil, natural gas, and other petroleum products. It operates in every continent except Antarctica. Although similar to ExxonMobil in its integrated business model, Chevron has emphasized a more aggressive exploration strategy and a larger focus on liquefied natural gas (LNG).

Dividend History and Current Yield

Chevron is a long-time member of the S&P 500 Dividend Aristocrats Index and has increased its dividend for over 32 consecutive years. As of now, Chevron’s dividend yield is approximately 8.9%.

Financial Health and Growth Prospects

Recent Financial Performance:

Chevron reported Q1 2023 earnings of $6.45 billion, up from a loss of $86 million in the same quarter a year earlier. The increase was driven by higher oil and gas prices, increased production, and cost savings.

Capital Expenditures and Expansion Plans:

Chevron plans to invest around $17 billion in capital projects this year, with a focus on LNG and other natural gas ventures. The company aims to grow its reserves by 3-5% annually through exploration and acquisitions.

Debt Levels and Debt Reduction Strategies:

Chevron’s debt to total capital ratio currently stands at around 28%. The company has been reducing its debt by selling non-core assets and increasing cash flows from operations. Chevron aims to maintain a strong balance sheet while investing for growth.

Comparison of ExxonMobil and Chevron

Both ExxonMobil and Chevron are dividend titans, but they differ in their strategies. While ExxonMobil focuses more on cost control, Chevron is more aggressive in its exploration efforts and LNG investments. In terms of dividend yields, Chevron currently offers a higher yield than ExxonMobil.

Risks and Challenges

Investing in energy stocks, particularly those of major players like ExxonMobil and Chevron, comes with its own set of risks that investors must be aware of. Let’s explore some of the significant risks that could impact these companies and, consequently, the potential returns for investors.

Geopolitical Instability

ExxonMobil and Chevron’s global operations make them susceptible to geopolitical instability in various parts of the world. For instance, political unrest in oil-rich countries like Venezuela or the Middle East could disrupt supply chains and escalate oil prices, leading to decreased profits for these companies.

Market Volatility

Market volatility, particularly in the energy sector, poses another significant risk for investors. Swings in oil prices due to global economic conditions or geopolitical developments can significantly impact these companies’ dividend yields and overall stock performance.

Environmental Concerns

As the world shifts towards renewable energy sources, environmental concerns have emerged as a major risk factor for energy stocks. Companies like ExxonMobil and Chevron face increasing regulatory pressure to reduce their carbon footprint and address climate change. Failure to adapt could lead to decreased demand for their products and a potential hit to their profits.

Impact on Dividend Yields

The risks discussed above could potentially impact the dividend yields of ExxonMobil and Chevron in various ways. For instance, geopolitical instability or market volatility could lead to decreased profits for the companies, making it difficult for them to maintain their current dividend payouts. On the other hand, stringent environmental regulations could force these companies to invest more heavily in cleaner technologies or face declining demand for their products, potentially leading to lower dividend yields.

Impact on Potential Returns

The risks outlined above could also significantly impact the potential returns for investors in ExxonMobil and Chevron stocks. While these companies have historically provided stable dividend yields, increased regulatory pressure, geopolitical instability, and market volatility could negatively affect their stock performance. As such, investors should carefully weigh the risks against potential rewards when considering investments in energy stocks.

VI. Conclusion

In this article, we have explored the potential of ExxonMobil (XOM) and Chevron (CVX) as high-yield dividend stocks. Both companies have a long history of consistent dividend payments, with ExxonMobil boasting an impressive 38-year uninterrupted dividend streak and Chevron following closely behind with a 32-year record. The current yields for these stocks are attractive, with ExxonMobil offering a dividend yield of around 5% and Chevron providing a yield of approximately 5.5%.

Key Points:

• Long-term dividend payment records
• Attractive dividend yields
• Financial stability and strong cash flows

However, investors should remember that their personal risk tolerance, investment horizon, and overall portfolio composition are crucial factors to consider before making a decision to invest in these stocks. ExxonMobil and Chevron carry some inherent risks due to their exposure to the volatile energy market. Therefore, it’s essential for investors to assess whether the potential rewards align with their risk appetite and investment objectives.

Personal Factors to Consider:

• Risk tolerance
• Investment horizon
• Portfolio composition

Lastly, it cannot be overstated that a thorough understanding of the underlying business fundamentals is essential when evaluating dividend stocks like ExxonMobil and Chevron. Analyzing financial statements, staying updated on industry trends, and keeping track of management actions are just a few of the crucial steps that can help investors make informed investment decisions. By combining this fundamental analysis with a consideration of personal factors, investors can position themselves for potentially successful long-term investments in these energy giants.

Final Thoughts:

In conclusion, ExxonMobil and Chevron offer attractive dividend yields as part of their long-term value proposition for investors. However, it is important to consider individual risk tolerance, investment horizon, and portfolio composition before investing in these stocks. A solid understanding of their underlying business fundamentals will further aid investors in making well-informed decisions that align with their investment objectives.