There are different segments of the broader energy sector, and each operates a little differently from the others. If you’re a conservative dividend investor looking for an energy stock, you probably wouldn’t want to put $2, let alone $2,000, into one of the higher-risk segments of the energy sector.
That’s why Devon Energy (DVN 3.38%) and its current 3.4% yield shouldn’t interest you. However, the two energy giants below, and their above-market yields, should.
What does Devon Energy do?
Devon Energy operates in the upstream part of the oil indutry, which means it mainly drills for oil and natural gas. It does that in the U.S. market, which further focuses its business. It isn’t inherently a bad thing to be an upstream company, but it leaves Devon Energy’s top and bottom lines almost totally reliant on the ups and downs of oil and natural gas prices. As you might expect, its stock price tends to move dramatically, tracking the prices of the commodities it produces.
To be fair to Devon Energy, it’s well run. For example, it had record production volumes in 2024. It completed a growth-minded acquisition during the year. And it has more than a decade of future drilling opportunities within its portfolio.
If you were looking for an energy stock that was likely to rise dramatically as oil and gas prices rise, this could be a very good choice. The 3.4% yield is well above the broader market’s current yield of around 1.3%, so there’s an attractive income component too.
The problem is that Devon Energy is also likely to fall dramatically if oil and gas prices weaken. If you aren’t prepared to handle those massive price swings, you’ll be better off looking at integrated energy giants like ExxonMobil (XOM 2.56%) and Chevron (CVX 1.74%).
What do Exxon and Chevron do differently?
Being integrated means that Exxon and Chevron have assets that span the entire energy sector, from the upstream through the midstream (pipelines) and all the way to the downstream (chemicals and refining). Pipelines are generally toll-taker businesses that provide reliable cash flows. Chemicals and refining are just as volatile as upstream businesses, but they often benefit from periods of low oil and gas prices because those fuels are vital inputs. Overall, the diversification within the industry helps to soften the peaks and valleys in energy prices.
Exxon and Chevron also have globally diverse portfolios. This allows them to drill for energy and sell it in the places where these activities will provide the most return. This can, at times, complicate things — Chevron’s operations in Venezuela have recently cropped up as a political issue. However, geographic diversification has been a net benefit over the long term for both companies.
Then there’s each company’s balance sheet. With Chevron and Exxon’s debt-to-equity ratios both hovering around 0.15, they have rock-solid financial positions. This allows them to take on debt during downturns to support both their businesses and their dividends. Notably, Devon Energy’s debt-to-equity ratio is a much higher 0.6. That’s not bad, per se, but Chevron and Exxon have much more financial flexibility.
That brings us to the most important fact for dividend-focused investors. ExxonMobil has increased its dividend annually for 42 consecutive years. Chevron’s streak is 38 years. Exxon’s dividend yield is now 3.8% and Chevron’s dividend yield is even higher at 5%. So not only are these two integrated energy giants built to survive energy-market volatility, but they’re also paying investors a higher yield relative to Devon Energy.
If income is your goal, go with ExxonMobil and Chevron
Devon Energy isn’t a bad energy company — it’s just an upstream energy company that is, by nature, volatile. Chevron and Exxon can’t avoid the ups and downs of the energy sector, but they make riding the swings a lot easier. If you’re a conservative income investor looking for energy exposure and dividends, Exxon or Chevron would be better choices than Devon Energy today (and, frankly, most days).