Despite the industry challenges, Chevron Corporation (CVX) and NextEra Energy, Inc. (NEE) are both gaining significant traction and rewarding shareholders with reliable dividends. But if you had to choose between them, which would be the better buy?
Chevron's Dividend Strength Over 37 Years
Chevron is one of the largest integrated energy majors globally, with operations spanning oil production, transportation, and processing. This strategic spread helps cushion the inherent volatility in oil and gas markets, ensuring stability and sustained growth.
Recently, oil prices dipped after hitting seven-week highs. Brent crude futures slipped to $85.27 a barrel, while U.S. West Texas Intermediate crude dropped to $81.47 per barrel. Despite the cyclical nature of the oil sector, Chevron’s solid operational and financial performance continues to shine through.
In its latest earnings release, the company reported a double-digit increase in worldwide production and returned $6 billion in cash to shareholders. CVX beat first-quarter earnings estimates, with an adjusted EPS of $2.93, surpassing analysts' expectations of $2.87. U.S. production surged to 1.57 million barrels of oil and gas per day, a 35% increase from a year ago, thanks to strong output from the Permian and Denver-Julesburg basins.
What truly sets Chevron apart is its financial muscle. The company’s debt-to-equity ratio is a mere 0.12, the lowest among its peers. This low leverage gives CVX the flexibility to support its operations and sustain its dividends even during downturns, providing a significant competitive advantage.
In the first quarter of 2024, Chevron’s return on capital employed exceeded 12%, reflecting efficient management and strategic investments. The company increased its quarterly dividend by 8% sequentially to $1.63 per share and repurchased nearly $3 billion worth of its shares.
With 36 consecutive years of dividend growth and a forward dividend yield of 4.16%, Chevron offers investors a compelling mix of income and growth potential. CVX has a four-year average yield of 4.35%, and its dividend payouts have grown at a CAGR of 6.4% over the past three years.
Moreover, the company aims to grow its annual free cash flow (FCF) by nearly 10% through 2027, even if Brent crude prices fall to $60 per barrel. With Brent crude currently around $83 per barrel, Chevron has ample room for growth. CVX’s strategy focuses on improving ROCE by investing in high-return areas like the Permian Basin, expected to drive substantial cash flow growth.
Increasing cash flow and robust dividend growth make CVX an attractive long-term investment. The company’s ability to navigate market fluctuations and maintain financial stability positions it as a top choice for investors seeking security and growth in the energy sector. Shares of CVX have gained over 4% over the past six months and nearly 5% year-to-date.
How Is NEE Positioned to Reward Shareholders?
NextEra Energy is a dual force in the energy sector, uniquely positioned with substantial operations in regulated utilities and renewable energy. As one of the largest regulated utility companies in the U.S., NEE enjoys stable earnings through its main subsidiary, Florida Power & Light (FPL).
FPL's recent expansion efforts, including the addition of 1,640 megawatts of new solar capacity, underscore its commitment to clean energy and meeting the growing electricity demands. In the first quarter that ended March 31, 2024, FPL reported a net income of $1.17 billion or $0.57 per share, reflecting an increase of 9.5% and 7.5% year-over-year, respectively.
Simultaneously, NextEra Energy Resources, the company's renewable energy arm, continues to advance in sustainable energy production. The segment had a record quarter, adding approximately 2,765 megawatts of new renewables and storage projects to its backlog. Its adjusted earnings for the quarter were $828 million and $0.40 per share, up from $732 million and $0.36 per share in the first quarter of 2023.
Financially, NEE's performance remains robust. During the quarter, the company’s adjusted earnings amounted to $1.87 billion or $0.91 per share, reflecting an increase of 11.6% and 8.3%, respectively. Its adjusted EBITDA was $462 million, and $164 million cash was available for distribution. Moreover, its revenue and EPS have grown at respective CAGRs of 16.6% and 20.2 over the past three years.
Looking forward, NEE sees significant growth potential in the U.S. renewables and storage market, expecting it to triple over the next seven years from 140 gigawatts to around 375-450 gigawatts. With an existing 74-gigawatt operating fleet, split between FPL and Energy Resources, the company aims to expand to over 100 gigawatts by 2026, further strengthening its operational scale and creating additional value for its stakeholders.
On June 17, NEE paid its shareholders a quarterly dividend of $0.52 per share. With 28 consecutive years of dividend growth and a forward dividend yield of 2.84%, NEE offers an attractive proposition for income-oriented investors seeking exposure to the clean energy sector. Also, it has a four-year average dividend yield of 2.23% and has grown its dividend payouts at a CAGR of 10.2% over the past three years.
All said, NEE stands at the forefront of the energy transition, leveraging its dual strengths in regulated utilities and renewable energy to drive sustainable growth and value creation. The stock has gained over 21% over the past six months and over 19% year-to-date.
Should You Buy Chevron or NextEra Energy?
Analysts are bullish on these dividend-paying giants, each presenting significant upside potential. So, how do these two stack up?
Mizuho gave Chevron a Buy rating and raised the price target from $200 to $205, implying a substantial 23.59% upside from the current price of $156.64. This sentiment is echoed by other prominent analysts, with HSBC and Scotiabank setting price targets of $178 and $195, respectively. This results in an average price target of $186.95, suggesting a potential 16% upside.
On the other hand, NextEra Energy has also caught the eye of analysts. BMO Capital recently maintained an Overperform rating on the stock and raised the price target from $78 to $79, suggesting an 8.3% upside from the current price of $72.46.
In terms of dividend yield as a rough measure of value, CVX's 4.2% yield is far more attractive compared to NEE's modest 2.8%. While both stocks historically offered higher yields during oil downturns, NextEra Energy's current yield is comparatively lower. This positions CVX as a stronger income play and suggests it may be the more attractive stock between the two.
