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Chevron vs. Occidental Petroleum: Which Warren Buffett Energy Stock is a Better Buy?

Barchart - Thu Sep 21, 2:28PM CDT

Chevron (CVX) and Occidental Petroleum (OXY) aren't just any old energy stocks - they're officially among the oil and gas stock holdings of legendary investor and Berkshire Hathaway (BRK.B) CEO Warren Buffett. Now, Buffett isn't your run-of-the-mill investor; he's known for his savvy value investing strategy and a vision that stretches out over the long haul.  

With oil prices on the upswing lately in response to production cuts, many investors are looking for top energy stocks to leverage higher commodity prices. So, let's start with a look at Buffett's sector standbys - here's a look at how CVX and OXY stack up in terms of price action, dividend yield, and potential upside for energy investors.

Why Chevron is a Solid Choice for Energy Investors

Chevron is a powerhouse in the energy industry, with operations in every step of the process from exploration and production to refining, marketing, chemicals, power generation, and even renewable energy. 

What's got income investors like Buffett excited is quite likely Chevron's impressive dividend game. Right now, it's sitting at 3.56%, which is slightly above the sector median. And here's the kicker – Chevron has been increasing its dividend for a jaw-dropping 35 years straight. That's what we call a dividend aristocrat. Their most recent dividend was $1.51 per share, up 6.25% from the last quarter, and they're doing all this with a comfortable payout ratio of just 35.78%. This means that they've got room to keep those dividends flowing.

What's more, Chevron isn't just about paying dividends; they also tend to outperform on earnings. During the last four quarters, they've beaten Wall Street's bottom-line estimates three times. Looking ahead, analysts are expecting 10% earnings growth for Chevron in fiscal 2024.

But what really sets Chevron apart is its ability to leverage higher oil prices. CVX has a production mix that leans more heavily toward crude than natural gas, and nearly three-quarters of its total production is priced based on oil. When crude futures are rising, like they are now, that's a big benefit for Chevron.

Chevron's stock has gained more than 8% in the past month alone, and is now down just 5% year-to-date.

Out of 17 analysts covering Chevron, eight rate it as a buy or strong buy, two as a moderate buy, and seven as a hold. Plus, the average price target of $187.35 implies expected upside of 13% from current levels. This all adds up to a compelling case for Chevron as a top-notch investment.

Occidental Petroleum: A Low-Yield, Low-Growth, and Low-Resilience Energy Stock

Occidental Petroleum, a major player in the oil and gas sector, operates across the globe, from the United States to Latin America, Africa, and the Middle East. However, it's been wrestling with the aftermath of its pricey acquisition of Anadarko Petroleum in 2019 (a deal for which it outbid Chevron). This move left them grappling with a hefty debt load and forced them to make a painful 86% cut to their dividend as oil prices tanked in 2020. 

OXY now offers a rather meager dividend yield of 1.04%, which is well below the sector median of 3.58%. While OXY has started to rebuild its payout in 2023, with a 20% increase from $0.15 to $0.18 per share, it still falls well behind Chevron's yield.

Occidental isn't particularly reliable when it comes to meeting Wall Street's expectations, either. They've missed EPS estimates in all of the last four quarters, and analysts are targeting a steep 63% slide in current quarter earnings already.

Looking at expert opinions, OXY's average price target of $69.37 implies a fairly modest implied upside of 10% from current levels. Among 19 analysts covering the shares, 8 rate it as a strong buy, while 10 consider it a hold, and one rates it as a sell.

Why Chevron is a Better Buy Than Occidental Petroleum

When deciding between Chevron and Occidental Petroleum, Chevron is the clear winner for a few simple reasons. First, Chevron delivers a solid and dependable dividend, while Occidental Petroleum's yield isn't nearly as robust. Second, Chevron boasts a robust and consistent earnings track record, while Occidental Petroleum's performance leave a lot to be desired in terms of execution. Third, analysts see more upside potential for Chevron from current levels. 

While they're both good enough for Buffett's portfolio, it looks like CVX has the edge in this face-off.

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.