ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX), two of the world's largest energy companies, are currently trading near record highs due to elevated oil prices. This surge is driven by the ongoing conflict in the Middle East, which has disrupted supply and pushed prices upward. However, history shows that oil prices are inherently volatile and prone to sharp declines, which will likely impact the stock prices of these energy giants.
Both Exxon and Chevron are integrated energy companies, meaning they operate across the entire energy sector, from drilling to refining. This diversification helps mitigate the impact of commodity price swings. Yet, their revenues and earnings remain heavily tied to oil prices. When prices fall, as they inevitably will, the companies' stock prices are expected to follow.
Despite this volatility, Exxon and Chevron are well-prepared to weather downturns. They maintain low debt-to-equity ratios of 0.13x and 0.17x, respectively, allowing them to take on debt during energy slumps. Both companies also boast impressive dividend histories, with Exxon increasing its dividend annually for 43 consecutive years and Chevron for 38 years. These dividends are a testament to their robust business models and strong balance sheets.
While Exxon and Chevron are solid picks for dividend-focused investors, the current high oil prices may not be the best time to buy. Exxon's yield is around 2.5%, and Chevron's is 3.3%, which are not as attractive as the yields seen during deeper oil downturns, such as the pandemic-induced slump when Exxon's yield rose above 10% and Chevron's above 9%. Investors may want to wait for a more favorable entry point when oil prices, and consequently, stock prices, are lower.