Chevron vs. NextEra Energy: Which Dividend Stock Is a Better Buy?

Despite the industry’s difficulties, Chevron Corporation (CVX) and NextEra Energy, Inc. (NEE) It’s gaining significant traction and paying stable dividends to shareholders. But if you have to choose between the two, which one is better to buy?

Chevron’s Dividend Strength Over 37 Years

Chevron is one of the world’s largest integrated energy majors, with businesses encompassing oil production, transportation and processing. These strategic spreads help mitigate the volatility inherent in oil and gas markets, ensuring stability and continued growth.

Recently, oil prices fell After hitting a seven-week high. Brent crude oil futures fell to $85.27 per barrel, and U.S. West Texas Intermediate crude oil fell to $81.47 per barrel. Despite the cyclical nature of the oil sector, Chevron’s strong operating and financial performance continues to shine.

its Latest Earnings Announcement, the company reported double-digit increases in global production and returned $6 billion in cash to shareholders. CVX beat first-quarter revenue estimates with adjusted EPS of $2.93, which topped analysts’ expectations of $2.87. U.S. oil and gas production increased 35% year over year to 1.57 million barrels per day, driven by increased production in the Permian and Denver-Julesburg basins.

What truly sets Chevron apart is its financial strength. The debt ratio is only 0.12, the lowest among similar companies. This low leverage gives CVX the flexibility to support operations and maintain its dividend even during economic downturns, giving it 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 has sequentially increased its quarterly dividend by 8% to $1.63 per share and bought back about $3 billion worth of its own stock.

Boasting 36 consecutive years of dividend growth and a forward dividend yield of 4.16%, Chevron offers investors an attractive combination of income and growth potential. CVX’s four-year average return is 4.35%, and its dividend payments have grown at a CAGR of 6.4% over the past three years.

Additionally, the company aims to nearly double its annual free cash flow (FCF). 10% by 2027This is true even if the price of Brent crude oil falls to $60 per barrel. With Brent crude currently hovering around $83 per barrel, Chevron has plenty of room to grow. CVX’s strategy focuses on improving ROCE by investing in high-yield regions, such as the Permian Basin, which are expected to drive significant cash flow growth.

With its growing cash flow and strong dividend growth, CVX is an attractive long-term investment. The company’s ability to weather market fluctuations and maintain financial stability makes it a top choice for investors seeking security and growth in the energy sector. CVX’s stock price has risen more than 4% over the past six months and nearly 5% since the beginning of the year.

How is NEE positioned to reward shareholders?

NextEra Energy is a dual player in the energy sector and is uniquely positioned with significant operations in the regulated utility and renewable energy sectors. As one of the largest regulated utilities in the United States, NEE enjoys stable profits through its major subsidiary, Florida Power & Light (FPL).

FPL’s recent expansion efforts, including the addition of 1,640 megawatts of new solar capacity, highlight its commitment to clean energy and meeting growing electricity demand. at first quarter For the year ended March 31, 2024, FPL reported net income of $1.17 billion, or $0.57 per share, an increase of 9.5% and 7.5%, respectively, from the prior year.

At the same time, the company’s renewable energy division, NextEra Energy Resources, continues to make advances in sustainable energy production. The sector posted a record quarter, adding approximately 2,765 megawatts of new renewable energy and storage projects to its backlog. Adjusted revenue for the quarter was $828 million, or $0.40 per share, compared to $732 million, or $0.36 per share, in the first quarter of 2023.

Financially, NEE’s performance remains solid. During the quarter, the company’s adjusted earnings increased 11.6% and 8.3%, respectively, to $1.87 billion, or $0.91 per share. Adjusted EBITDA was $462 million and cash available for distribution was $164 million. Additionally, over the past three years, revenue and EPS have grown at a CAGR of 16.6% and 20.2%, respectively.

NEE sees significant growth potential in the U.S. renewable energy and storage market, forecasting a tripling from 140 gigawatts to approximately 375 to 450 gigawatts over the next seven years. 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 the scale of its operations and creating additional value for its stakeholders.

June 17, NEE paid Shareholders receive a quarterly dividend of $0.52 per share. Boasting 28 consecutive years of dividend growth and a dividend yield of 2.84%, NEE offers an attractive proposition for income-oriented investors seeking exposure to the clean energy sector. Additionally, the four-year average dividend yield is 2.23%, and dividend payments have increased at a compound annual growth rate (CAGR) of 10.2% over the past three years.

Having said all that, NEE is at the forefront of the energy transition, leveraging the twin strengths of regulated utilities and renewable energy to drive sustainable growth and value creation. The stock is up more than 21% in the past six months and more than 19% since the beginning of the year.

Should you buy Chevron or NextEra Energy?

Analysts are bullish on these dividend-paying giants, with each showing significant upside potential. So how do these two compare?

Mizuho gave Chevron a Buy rating and raised its investment rating. The target price is from $200 to $205.This implies a significant 23.59% upside from the current price of $156.64. This sentiment was echoed by other prominent analysts, with HSBC and Scotiabank setting stock price targets of $178 and $195, respectively. This puts the average price target at $186.95, suggesting a potential upside of 16%.

Meanwhile, Next Era Energy also caught the attention of analysts. BMO Capital recently maintained an Overperform rating on the stock. The target price is from $78 to $79.This suggests an 8.3% upside from the current price of $72.46.

In terms of dividend yield, which is a rough measure of value, CVX’s 4.2% yield is much more attractive than NEE’s modest 2.8%. Both stocks have historically delivered higher returns during oil downturns, but NextEra Energy’s current returns are relatively low. This positions CVX as a stronger income play and suggests it may be the more attractive stock between the two.