Better Energy Stock: Chevron vs. Occidental Petroleum

With the strength of the economy under scrutiny and uncertainties regarding sweeping changes in U.S. trade policy, oil and gas prices are struggling to find their footing at the start of 2025. Amid this turbulence, investors may be wondering which energy stocks are best positioned to weather this storm.

One option to consider is Chevron (NYSE: CVX), an industry leader offering a high-yielding 4.9% dividend. On the other hand, Occidental Petroleum (NYSE: OXY) trades at an attractive valuation, which could translate into stronger returns going forward.

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Let's discuss which stock is the better buy right now.

Image source: Getty Images.

Chevron: Strength in diversification

Even through the broader stock market volatility and energy sector weakness, Chevron's stock has been resilient, down just 5% year to date at the time of writing. Shareholders can thank the company's global diversification and robust fundamentals, which underscore the stock's appeal as a long-term investment. The integrated oil and gas giant continues to capitalize on its extensive global footprint and a portfolio of world-class upstream, downstream, and chemicals manufacturing assets.

Chevron's major expansion project in Kazakhstan, known as the Tengizchevroil (TCO) oilfield, has already delivered first oil this year, with output expected to ramp up. The company is also expanding operations in the Gulf of Mexico, with multiple new sites starting up. Additionally, Chevron's assets in the Permian Basin have been a growth driver.

Looking ahead, Chevron is targeting a total annual production growth rate between 6% and 8% for 2025 and 3% to 6% in 2026. As part of an effort to achieve structural efficiencies and cost savings, Chevron also expects to generate upward of $9 billion in additional free cash flow compared to 2024's $15 billion haul, under a baseline assumption of the Brent crude oil price benchmark at $60 per barrel.

This strong free-cash-flow outlook is great news for investors thinking about the sustainability of Chevron's $1.71-per-share quarterly dividend, which currently yields an attractive 4.9%. The company intends to continue with a large stock buyback program, further supporting shareholder returns. For investors convinced that Chevron is built for the long run, there are plenty of reasons to buy and hold the stock as part of a diversified portfolio.

CVX Dividend Yield data by YCharts

Occidental Petroleum: More upside potential

With a market capitalization of $36 billion, Occidental Petroleum is much smaller than Chevron's $239 billion valuation. Yet, the company stands out with its leadership position, particularly in onshore oil and gas production, where it has leveraged its expertise to develop technically complex and unconventional reserves.

Occidental has a significant presence in the Permian Basin, one of the most prolific oil-producing regions in the U.S, alongside extensive operations in the Rockies region and the Gulf of Mexico. The company is further diversified with chemicals and midstream infrastructure, as well as some international assets. Notably, Occidental is on track to complete its Stratos industrial-scale direct air carbon recapture facility, highlighting the company's pioneering role in this new market segment.

Despite record U.S. energy production in 2024 and underlying profitability, an intense investing spending plan likely explains its stock price weakness, down 22% year to date.

Nevertheless, the recent volatility might present an opportunity for investors to buy shares at a discount. Occidental Petroleum stock is trading at under 12 times its forecast 2025 earnings per share (EPS), and just 8 times its free cash flow over the past year. Both of these valuation metrics are less expensive relative to Chevron, suggesting shares of Occidental have better value.

Given the company's operational focus and more leveraged financial profile, Occidental Petroleum might offer more upside potential in a scenario where oil and gas prices rebound. Investors who are very bullish on the energy sector can consider buying the stock for a diversified portfolio.

CVX PE Ratio (Forward) data by YCharts

Decision time: Chevron has an edge

In the currently delicate macroeconomic environment, I believe Chevron is the better energy stock. Considering the risk that oil and gas prices remain volatile or fall further, Chevron's more diversified asset base and higher-quality fundamentals could be a more reliable option for investors while delivering solid dividend income.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.