Want Decades of Passive Income? 2 Oil Stocks to Buy Right Now.

The one thing that investors need to understand about buying oil stocks is that oil prices are highly volatile. If you are looking to buy an oil company with the goal of producing a long-term income stream you have to focus extra attention on the business behind the dividend. Simply put, not all oil stocks are built the same way. But Chevron (NYSE: CVX) and TotalEnergies (NYSE: TTE) are the kinds of oil companies that you can buy right now and comfortably own for decades while you collect a handsome stream of passive income. Here's why.

Chevron and TotalEnergies aren't just about oil

The energy sector is generally broken up into three segments, the upstream (oil and natural gas production), the midstream (energy infrastructure, like pipelines), and the downstream (chemical makers and refiners). There's really no such thing as a pure play oil company, since virtually all oil producers also produce natural gas. But if you want the most direct exposure to oil and gas, you'll buy a pure play upstream company.

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That would be an exciting ride, however, because their top- and bottom-lines are directly tied to the highly volatile price of oil and natural gas. Downstream companies are similarly volatile, since oil and gas are key inputs and, on top of that, many of the products they make are also commodities. Midstream operators, which charge fees for moving energy, tend to be more consistent. As toll takers, the price of the commodities moving through their systems is less important than energy demand. Energy demand tends to remain high even when oil prices are low.

That's a lot to take in, but you don't have to worry about it if you focus on an integrated energy company. These businesses have exposure to all segments of the industry and, usually, add geographic diversification on top of that. Chevron and TotalEnergies are both integrated energy companies. Oil price volatility impacts their top- and bottom-lines, but the swings aren't normally as severe as those faced by pure play upstream or downstream companies.

Chevron is a dividend standout

So, from a business foundation standpoint, if you are looking for a reliable dividend stock Chevron and TotalEnergies stand out within the industry. Still, there are other integrated energy companies you could buy. Why go with Chevron and/or TotalEnergies?

Chevron is probably the better choice for conservative income investors. It has an attractive 4.1% dividend yield backed by a dividend that has been increased annually for 37 consecutive years. That's not the best dividend streak in the industry. ExxonMobil has increased its dividend for 42 years, but its yield is a notably lower 3.6%.

Chevron also happens to have one of the strongest balance sheets in the integrated energy sector, with a debt-to-equity ratio that is below 0.2x. That's where Exxon's debt-to-equity ratio sits, too, allowing both of them to lean on their balance sheets during industry downturns so they can continue to invest in their businesses and pay their dividends. When energy markets improve, as they always have historically, the two companies pay down debt in preparation for the next downturn. Either one would be a fine long-term selection, but Chevron's higher yield gives it the edge right now.

TotalEnergies is preparing for a different energy future

TotalEnergies' appeal is a little different. During the early days of the coronavirus pandemic European energy giants BP and Shell announced plans to include more clean energy in their business mix. TotalEnergies, which had already been investing in the space, made a similar commitment. BP and Shell cut their dividends when they made their announcements. TotalEnergeis maintained its dividend even though oil prices were weak at the time.

As energy markets bounced back TotalEnergies increased its dividend. So did BP and Shell, but that doesn't make up for their cuts during the pandemic-related oil downturn. And, even more troubling, both BP and Shell have since pulled back on their commitments to clean energy. TotalEnergies, if anything, has increased its commitment. The segment grew 17% in 2024, a period in which the rest of TotalEnergies' business was struggling because of weak oil prices.

That's a short-term benefit worth noting, but the real appeal is that TotalEnergies is adjusting today for a world in which electricity is more prominent. While it doesn't have the dividend track record of Chevron, TotalEnergies is a good way for investors interested in oil to hedge their bets as clean energy becomes more and more important to the global energy landscape. The dividend yield, meanwhile, is 5.6%, though U.S. investors need to keep in mind that they will have to pay French taxes on that income (some of which can be claimed back come tax time).

You can't avoid volatile oil markets, but you can prepare for them

There are higher yielding energy stocks out there. But if you are looking to create decades of passive income from an oil investment, you need to focus on both the yield and the business behind the yield. Right now, Chevron offers a great combination of income and quality. TotalEnergies, meanwhile, is providing an impressive mix of income and diversification as the world increasingly includes cleaner energy sources in the mix. Both are solid income options today and, more importantly, will likely remain solid options for decades to come.

Should you invest $1,000 in Chevron right now?

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Reuben Gregg Brewer has positions in TotalEnergies. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends BP. The Motley Fool has a disclosure policy.