Energy Stocks Are Soaring. 3 High-Yield Oil Stocks to Buy Now.

Out of the 11 stock market sectors, energy is the best-performing year to date -- up 7.9% at the time of this writing compared to a 5.1% decline in the S&P 500 (SNPINDEX: ^GSPC).

The move may come as a surprise, given that the U.S. benchmark oil price, West Texas Intermediate, is $69.36 per barrel compared to an average of $76.63 in 2024. But leading oil and gas stocks offer investors a great deal of safety amid economic uncertainty and trade tensions.

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Here's why ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), and ConocoPhillips (NYSE: COP) stand out as three balanced dividend stocks to buy now.

Image source: Getty Images.

Raking in the cash flow

ExxonMobil, Chevron, and ConocoPhillips all have clear paths toward delivering strong free cash flow (FCF) even at current oil prices. These companies have done an impressive job of boosting efficiency and lowering costs across their production portfolios, which allows them to generate a ton of FCF, even at mediocre oil prices.

ExxonMobil has a five-year corporate plan with the goal of breaking even at $30 per barrel Brent (the international benchmark) by 2030 and delivering $110 billion in surplus cash through 2030, even if Brent averages just $55 per barrel. At $73.63 per barrel at the time of this writing, Brent is typically a few dollars higher per barrel than WTI.

At $70 Brent, Chevron expects to bring in $5 billion on FCF in 2025 and $6 billion in 2026, which includes fixed loan payments and quarterly dividends. On its fourth-quarter 2024 earnings call, Chevron said it expects to add $10 billion in annual FCF over the next two years. Around 75% of Chevron's oil investments can break even below $50 per barrel Brent.

ConocoPhillips has elevated capital expenditures as it is investing in long-term projects. However, the payoff should be worth it, as these projects are expected to produce $6 billion in incremental FCF, assuming WTI oil prices stay around $70. Throw in the acquisition of Marathon Oil, which was completed in November, and FCF could be massive in the coming years.

Growing capital return programs

All three companies generate so much FCF that they can afford to steadily grow their dividends and repurchase a substantial amount of stock.

In 2024, ExxonMobil returned a staggering $36 billion to shareholders -- $16.7 billion in dividends and $19.3 billion in buybacks. It plans to continue its annual $20 billion share repurchase program through 2026. ExxonMobil has raised its dividend for 42 consecutive years.

Between 2022 and 2024, Chevron returned over $75 billion to shareholders, including a record $27 billion last year, consisting of $11.8 billion in dividends and $15.2 billion in buybacks. Chevron has raised its dividend for 38 consecutive years.

ConocoPhillips returned $9.1 billion to shareholders in 2024 -- $3.6 billion through dividends and $5.5 billion in buybacks. It plans to return $10 billion to shareholders in 2025. ConocoPhillips doesn't have the dividend track record of ExxonMobil or Chevron. However, it recently simplified its dividend, removing its variable return on cash and raising the ordinary dividend. The ordinary dividend is now $0.78 per share per quarter -- good for a yield of 3.1% compared to 3.4% for ExxonMobil and 4.1% for Chevron.

Despite their high yields, each company spent more on buybacks in 2024 than on dividends -- which showcases the scale of their FCF generation. Buybacks provide a cushion in case oil prices fall. During past downturns, ExxonMobil and Chevron have cut or suspended their buyback programs but have kept raising their dividends -- making both companies ultra-reliable passive income sources.

In sum, all three companies are well positioned to make considerable buybacks and pay attractive dividends, which is appealing during a time when other industries are experiencing slow growth and some companies are struggling to support their high yields.

Rock-solid balance sheets

It would be one thing if ExxonMobil, Chevron, and ConocoPhillips' capital return programs were straining their balance sheets -- but that is hardly the case.

All three companies have debt-to-capital (D/C) ratios near 10-year lows.

COP Debt To Capital (Quarterly) data by YCharts

The D/C ratio helps measure a company's leverage and dependence on debt financing operations. In the capital-intensive oil and gas industry, some companies use leverage to accelerate growth, but that can also lead to amplified losses. Supporting operations and capital expenditures with FCF is the safer option. That way, if a downturn does happen, the balance sheet can absorb debt without leverage getting out of control.

Reasonable valuations

ExxonMobil, Chevron, and ConocoPhillips all have low price-to-earnings and price-to-FCF ratios, indicating that they are good values.

CVX PE Ratio data by YCharts

It's worth noting that these ratios are based on trailing-12-month results. With oil prices on track to be lower in 2025 than in 2024, margins could come down in the near term. However, the impact of acquisitions and expansions at all three companies could still lead to earnings and FCF growth even at lower oil prices.

With cyclical industries like oil and gas, it's best not to put too much attention on valuation metrics because of volatility. But they do provide a good ballpark estimate for how a company should be valued in a specific price environment. For example, valuation metrics at all three companies spiked based on losses in 2020 and then looked dirt cheap based on 2022 results when WTI oil prices averaged over $90 per barrel in 2022.

In today's price environment, valuation metrics provide a good reading of how each company should be valued based on mid-cycle conditions rather than extremes.

Safe stocks to consider now

ExxonMobil, Chevron, and ConocoPhillips are well positioned to steadily grow their cash flows and pass along profits to shareholders through buybacks and dividends. All three stocks yield considerably more than the S&P 500 average of 1.3%, making them excellent choices for investors looking to boost their passive income.

While energy isn't typically seen as a safe sector compared to utilities, healthcare, or consumer staples, the highest-quality companies in the sector, like ExxonMobil, Chevron, and ConocoPhillips, can be viewed as safe stocks, given their excellent balance sheets and manageable payouts.

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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.