Better Buy For 2025: Exxonmobil Or Chevron?

Natural gas prices recently jumped 20% in a single day. That's a pretty shocking move but, frankly, not all that unusual when it comes to energy prices. If you are looking at the broader energy sector and trying to figure out which stock to buy as 2025 gets underway, your best option is probably going to be an integrated energy giant like ExxonMobil (NYSE: XOM) or Chevron (NYSE: CVX).

Here's how these two U.S. energy giants stack up and why you might want to pick Chevron.

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The benefits of integration

As the natural gas example above highlights, energy prices are highly volatile. That often leads to massive swings in the prices of energy producers. Energy producers live in the upstream segment of the broader energy sector.

There are, however, two other segments, the midstream and downstream. Midstream companies own things like pipelines and collect fees from companies that use these assets to transport energy commodities. It is a relatively stable segment of the broader energy sector.

Meanwhile, downstream companies use oil and natural gas to produce chemicals and other refined products. Downstream companies often benefit from lower energy prices, though it is important to note that chemicals and refined products are often commodity products themselves subject to their own, sometimes volatile, price dynamics.

Integrated energy companies like Exxon and Chevron have exposure to all three segments of the broader energy industry. Although oil and natural gas prices are still the driving force behind financial results, having exposure to the midstream and downstream helps to soften the peaks and valleys.

For most investors, going with an integrated energy company will be the best choice. And sticking to the industry giants, a list that includes Exxon, Chevron, BP, Shell, and TotalEnergies, will probably be the best individual option. In this regard, Exxon and Chevron are interchangeable with any of the others on the list.

Dividends that keep going up

That said, Exxon and Chevron stand out in a very important way. They have both increased their dividends annually for decades. BP and Shell cut their dividends during the early days of the pandemic in 2020. TotalEnergies didn't cut its dividend at that point, but it just doesn't have the same track record of regular dividend growth that Exxon and Chevron have. Exxon and Chevron have shown a material dedication to investors and that quickly winnows down the choice from five to two.

XOM Dividend Per Share (Quarterly) data by YCharts

But Exxon's streak of annual dividend increases is better. The energy giant has hiked its dividend for 42 consecutive years. Chevron's streak is "just" 37 years long. Clearly, this is something of a fine distinction, since both are very impressive dividend streaks. However, Exxon still gets the edge, even if it is only a slight advantage.

A higher yield with Chevron

The other side of the dividend, however, is the dividend yield. On this front, Chevron wins hands down with a 4.5% yield. Exxon's yield is a lower 3.7%. That may not seem like a huge difference on an absolute basis, but percentage wise Chevron's yield is 20% higher. That's a very big difference that will likely be of interest to income-focused investors.

That outcome, however, has to be juxtaposed against the risk of a dividend cut. Because energy prices, and thus earnings, are so volatile, the dividend payout ratio isn't a great indication of dividend sustainability in the energy sector. You have to focus on a mix of the company's commitment to the dividend (which is good for both Chevron and Exxon) and financial strength. In this case, Chevron and Exxon have similarly low debt-to-equity ratios, suggesting that their leverage is modest.

XOM Debt to Equity Ratio data by YCharts

In fact, this is part of the long-term plan, as both add debt during industry downturns so they can continue to fund their businesses and dividends. When energy prices recover, as they always have historically, the companies pay down the debt they took on. Although you wouldn't be taking on massive risk with Exxon, the added yield from Chevron still wins out here from a risk/reward basis.

XOM Return on Capital Employed data by YCharts

Temporary headwinds at Chevron

The next question to ask when comparing Chevron and Exxon is why there is a dividend yield discrepancy. The answer is pretty simple -- Exxon is performing better right now on some key industry metrics, including return on capital employed. Chevron is also in the middle of buying Hess, but the deal is being held up because of business relationships Hess has with other companies, including Exxon. Investors are clearly worried that Chevron just isn't hitting on all cylinders right now.

That is a legitimate concern and, perhaps, it is appropriate that Chevron's yield is higher. However, if you think in decades and not days this could also be an opportunity. Given Chevron's long and successful history, financial strength, and diversified business model, it seems highly likely that it will eventually muddle through this patch of weakness. And even if the Hess deal falls apart, the $250 billion market cap company is large enough and financially strong enough to simply find another acquisition candidate if it wants to.

All in, Chevron is trailing behind Exxon today. But investors are getting paid for the added risk this poses via the higher dividend yield. That will probably be an attractive risk/reward trade-off for most investors.

It could go either way with Exxon and Chevron

You wouldn't be making a massive mistake if you bought Exxon over Chevron in 2025. But, at the same time, Chevron appears to offer some compelling advantages over Exxon, particularly if you are focused on maximizing the income your portfolio generates. With similar business models, similar financial strength profiles, and similar commitments to shareholder returns (highlighted by their strong dividend track records), choosing higher-yielding Chevron seems like the right call for 2025.

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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.