Investing in dividend stocks is an excellent strategy for conservative investors who prioritize stability and consistent income. While growth stocks can be volatile, dividend-paying companies offer a reliable income stream, making them attractive to those looking for steady returns. Among these, Dividend Aristocrats stand out as companies that have increased their dividends for at least 25 consecutive years, reflecting their resilience and strong financial health.
In this article, we highlight two top Dividend Aristocrats—Exxon Mobil (XOM) and Chevron (CVX)—that offer yields close to 4%. These energy giants not only provide steady dividend payouts but also have robust financials and growth prospects that make them appealing to long-term investors.
1. Exxon Mobil (XOM)
Company Overview
Exxon Mobil, established in 1870, is one of the largest energy companies in the world. With a diversified portfolio spanning multiple sectors, Exxon operates in three primary business segments:
Upstream: Exploration and production of crude oil and natural gas.
Downstream: Refining and marketing petroleum products like gasoline, diesel, and jet fuel.
Chemical: Production of petrochemicals, resins, and industrial chemicals.
With a market capitalization of $489.3 billion, Exxon Mobil continues to be a dominant player in the energy industry.
Dividend Strength and Yield
Exxon Mobil has consistently rewarded its shareholders with dividends for over 42 consecutive years, qualifying it as a Dividend Aristocrat. Currently, the stock offers a forward dividend yield of 3.55%, slightly below the energy sector average of 4.24%. However, Exxon's low payout ratio of 44% indicates ample room for future dividend growth.
In Q3 2024, Exxon reported earnings of $1.92 per share, down from $2.27 per share in the previous year due to lower natural gas prices and refining margins. Despite these short-term headwinds, Exxon remains financially robust, with $27 billion in cash and an adjusted free cash flow of $8.9 billion. This financial strength has allowed the company to continue returning capital to shareholders through dividend hikes and share repurchases.
Growth Prospects and Future Outlook
Looking ahead, Exxon plans to invest $140 billion in major projects and the Permian Basin development program through 2030. The company forecasts a 10% compounded annual growth rate (CAGR) for earnings and an 8% CAGR for cash flow by the end of the decade. Moreover, Exxon aims to repurchase shares at a rate of $20 billion annually by 2025.
Despite an anticipated 18% decline in earnings in 2024, analysts remain optimistic about Exxon's long-term prospects. Currently, Wall Street rates XOM stock as a "Moderate Buy," with 15 analysts giving it a "Strong Buy" rating, eight recommending "Hold," and one rating it as a "Strong Sell." With a target price of $129.91, analysts predict up to 16.7% upside from its current level, with a maximum potential gain of 32% over the next 12 months.
Why Buy Exxon Mobil?
Strong Dividend History: 42 consecutive years of dividend growth.
Financial Strength: Large cash reserves and low payout ratio.
Growth Potential: Significant investments in the Permian Basin and renewable energy.
Stock Buybacks: Aggressive repurchase program enhances shareholder value.
2. Chevron (CVX)
Company Overview
Founded in 1879, Chevron is a globally integrated energy company operating in over 180 countries. Similar to Exxon, Chevron's business spans:
Upstream: Oil and gas exploration, production, and development.
Downstream: Refining, marketing, and distribution of petroleum products.
Renewable Energy: Investments in hydrogen, carbon capture, and biofuels.
Chevron has a market capitalization of $284.1 billion and remains one of the most resilient companies in the energy sector.
Dividend Strength and Yield
Chevron is another Dividend Aristocrat, having increased its dividend payments for 37 consecutive years. The stock currently offers an attractive forward yield of 4.09%, slightly below the sector average but well above many other blue-chip companies.
In Q3 2024, Chevron reported an adjusted earnings decline of 17.7% to $2.51 per share, primarily due to lower refining margins and tax challenges. However, increased production in the Permian Basin and the acquisition of PDC Energy contributed to a 7% YoY growth in global oil-equivalent production.
Despite short-term earnings challenges, Chevron maintains a conservative payout ratio of 50.9%, ensuring long-term dividend sustainability. The company also reported $5.6 billion in free cash flow in Q3, enabling it to continue dividend payments while repurchasing shares worth $7.7 billion.
Growth Prospects and Future Outlook
Chevron is actively optimizing its operations to improve financial efficiency and enhance shareholder returns. Key initiatives include:
Divesting $10–$15 billion in non-core assets by 2028 to improve capital efficiency.
Reducing structural costs by $2–$3 billion from 2024 to 2026.
Expanding investments in renewable energy and carbon capture.
Looking ahead, analysts expect Chevron’s Q4 2024 earnings to rise to $2.14 per share, up from $1.22 in Q4 2023. While earnings are expected to decline by 21.7% in 2024, a 7.17% rebound is projected in 2025.
Wall Street rates CVX stock as a "Strong Buy," with 15 out of 22 analysts recommending a "Strong Buy," two giving a "Moderate Buy," and five suggesting "Hold." With an average price target of $176, the stock has 10.4% upside potential, while the highest target price of $197 suggests a 23.6% upside.
Why Buy Chevron?
Stable Dividend History: 37 years of consecutive dividend increases.
Solid Financials: Strong free cash flow and sustainable payout ratio.
Growth Initiatives: Cost-cutting measures and asset optimization.
Renewable Energy Investments: Expanding footprint in clean energy sectors.
Conclusion: Should You Buy These Dividend Aristocrats?
Both Exxon Mobil (XOM) and Chevron (CVX) present compelling investment opportunities for dividend-focused investors. These Dividend Aristocrats offer near 4% yields, backed by solid financials, consistent dividend growth, and long-term strategic plans for future expansion.
Which Stock is the Better Buy?
Exxon Mobil is ideal for investors seeking aggressive capital growth alongside dividends, given its ambitious $140 billion investment plan and stock buyback program.
Chevron is suitable for those preferring stability, cost efficiency, and a well-balanced approach to traditional and renewable energy investments.
With their resilient business models, strong cash flows, and strategic growth initiatives, both companies remain top-tier dividend stocks that income-focused investors should consider adding to their portfolios.
Final Thoughts
Investing in dividend stocks like Exxon Mobil and Chevron can provide consistent income and long-term value appreciation. With their attractive yields, sustainable payouts, and future growth potential, these Dividend Aristocrats offer a solid hedge against market volatility while ensuring steady passive income. Whether you're a long-term investor or someone looking for stable dividends, XOM and CVX are strong contenders to consider in 2024 and beyond.