3 Reasons Why High-Yield Dividend Stocks ExxonMobil and Chevron Are No-Brainer Buys in February

On Friday, oil and gas majors ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) fell 2.5% and 4.6%, respectively, after reporting fourth-quarter and full-year 2024 results.

The energy sector, led by ExxonMobil and Chevron, got off to a hot start this year as West Texas Intermediate (WTI) crude oil prices topped $80 per barrel. But now, WTI oil prices are hovering between $70 and $75 per barrel -- giving up the bulk of their year-to-date gains.

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Let's dive into the key takeaways from ExxonMobil's and Chevron's results and discuss why both high-yield dividend stocks are worth buying in February.

Image source: Getty Images.

1. Strong results, all things considered

ExxonMobil and Chevron have been on a roller coaster over the last five years. The pandemic-induced crash led to steep losses for both companies in 2020. Russia's invasion of Ukraine in February 2022, followed by an economic rebound, led to higher oil and gas prices. 2021 was a recovery year for both companies. But 2022 saw surging sales, earnings, and free cash flow (FCF).

ExxonMobil

Data source: ExxonMobil. EPS = earnings per share. FCF = free cash flow.

Chevron

Data source: Chevron.

Since then, both companies have ramped up capital expenditures and announced major acquisitions. However, the return to expansion has coincided with lower oil and gas prices. 2024 saw lower sales and earnings for both companies, but context is key.

Focusing on upstream alone, both companies are delivering excellent results thanks to low production costs and technological advancements. The main issue is the downstream business. In 2024, ExxonMobil earned just $4.03 billion in worldwide earnings in its energy products segment compared to $12.14 billion in 2023. Worldwide upstream earnings were higher in 2024 than in 2023 due to the integration of Pioneer Natural Resources and ExxonMobil's expansion offshore Guyana.

Meanwhile, Chevron reported a loss in its U.S. downstream business in the fourth quarter of 2024. For the full year, the U.S. downstream segment reported just $531 million in earnings compared to $3.9 billion in 2023. The international downstream segment eked out a $100 million profit in Q4, but had over $1 billion less in profit for the year compared to 2023.

Given the challenges of lower oil and gas prices and refining margins, ExxonMobil and Chevron had solid years. ExxonMobil, in particular, generated incredibly impressive free cash flow -- a testament to its efficiency improvements.

2. Excellent balance sheets

ExxonMobil and Chevron are well positioned to deliver strong earnings in 2025, even at lower oil prices. Seventy-five percent of Chevron's oil investments have a break-even point below $50 per barrel, while ExxonMobil's corporate plan through 2030 is based around $65-per-barrel Brent crude oil prices. Brent crude oil prices are over $76.75 per barrel at the time of this writing.

What's more, both companies can afford to support long-term growth plans even during cyclical downturns thanks to their strong balance sheets.

ExxonMobil finished 2024 with a net debt-to-capital ratio of just 6.8% -- which is calculated by dividing its $41.7 billion in total debt minus $23.2 billion in cash and cash equivalents by total equity of $270.6 billion. Similarly, Chevron finished the year with $24.5 billion in debt, $6.8 billion in cash and cash equivalents, and a net debt ratio of 10.4%.

Given their size and the capital-intensive nature of the oil and gas business, both companies have very healthy balance sheets -- giving them flexibility to navigate a period of lower oil and gas prices.

3. Sustainable capital return programs

2024 showcased the impeccable profitability of ExxonMobil and Chevron -- even during mid-cycle conditions. Both companies returned boatloads of capital to shareholders without compromising the health of their balance sheets.

In 2024, ExxonMobil paid $16.7 billion in dividends and bought back $19.3 billion in stock -- reaffirming plans to spend $20 billion on buybacks per year through at least 2026.

Chevron spent $11.8 billion in dividends and $15.2 billion on buybacks. On Friday, it raised its dividend by 5% -- marking the 38th consecutive year Chevron has boosted its payout. Meanwhile, ExxonMobil has raised its dividend for 42 consecutive years.

Based on its new dividend payout of $1.71 per share per quarter, Chevron has a forward dividend yield of 4.6% compared to 3.7% for ExxonMobil.

Quality dividend stocks at a good value

Sizable yields, track records for annual dividend raises, and strong balance sheets make ExxonMobil and Chevron excellent high-yield dividend stocks for passive income investors to consider buying now. Lower oil and gas prices and a downturn in the refining industry have weighed down both companies. And yet, they still can return plenty of capital to shareholders and invest in long-term growth through higher capital expenditures.

Both companies sport reasonable valuations. Based on 2024 earnings per share and both stocks' closing prices on Jan. 31, ExxonMobil has a price-to-earnings ratio of just 13.6 compared to 15.3 for Chevron. That's a compelling value considering trailing earnings were hindered by the factors discussed.

Add it all up, and ExxonMobil and Chevron are no-brainer buys for investors looking to boost their passive income stream from the two strongest players in the oil patch.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.