Chevron is recognized as a leading entity in the energy sector, characterized by both diversification and an appealing dividend yield. However, Enterprise Products Partners offers a comparatively higher yield and operates within a more stable business environment.
Chevron, trading under the ticker CVX with a recent increase of 2.86%, is a well-managed energy corporation with an attractive 4.3% dividend yield, supported by 37 years of consecutive dividend growth. For investors seeking a diversified energy stock that also delivers a substantial yield, Chevron presents a viable option. However, for those prioritizing yield over diversification, Enterprise Products Partners, represented by the ticker EPD and recently increasing by 0.56%, might be more suitable.
Chevron is categorized as an integrated energy major due to its significant market presence and a market capitalization of $270 billion, making it one of the largest energy companies globally. Its operations are internationally diversified and cover three primary segments of the energy sector: upstream energy production, midstream energy transportation, and downstream chemicals and refining. This makes Chevron an excellent option for investors seeking a straightforward way to incorporate energy exposure into their portfolios, alongside a dependable dividend. Nevertheless, the volatility inherent in Chevron’s upstream and downstream operations, influenced by fluctuating commodity prices, might pose challenges for conservative investors in the long term.
In contrast, Enterprise Products Partners offers a robust alternative with a higher yield of 7.2%. This master limited partnership operates predominantly within the midstream segment, which is regarded as the most stable area in the energy market. The company owns and manages essential transportation assets, such as pipelines, for global oil and natural gas movement. Enterprise generates revenue through fees for utilizing its infrastructure, with energy demand generally remaining high even during downturns in oil prices. This results in highly reliable cash flows, enabling the partnership to increase distributions consistently for 26 years. With its distributable cash flow covering its distribution by a factor of 1.7, the company has considerable buffer against financial challenges before contemplating any distribution cuts.
The high yield of Enterprise Products Partners is primarily because this yield constitutes a significant portion of potential investor returns over time. Although the most lucrative growth opportunities might have passed, combining low-single-digit distribution growth with a 7%+ distribution could provide returns comparable to the broader market’s historically expected 10%. For conservative income-oriented investors seeking substantial yields from a stable enterprise, Enterprise may offer a more advantageous choice than Chevron.
While both Chevron and Enterprise are commendable investments, the latter provides a superior yield, making it an attractive option for dividend-focused investors. Chevron remains a well-managed firm and can offer comprehensive sector exposure; however, those primarily interested in yields may find the consistent 7.2% return from Enterprise more enticing. The appeal of this steady return is likely to resonate with dividend investors.
Reuben Gregg Brewer holds no positions in any of the mentioned stocks. The Motley Fool possesses shares in and endorses Chevron while also recommending Enterprise Products Partners. Additional details can be found in The Motley Fool’s disclosure policy.
