The Best Energy Stock to Invest $1,000 in Right Now

Key Points

• Energy stocks tend to be highly volatile because oil and natural gas prices are highly volatile.

• Integrated energy companies attempt to balance risk and reward by building a diversified business.

• One integrated energy giant stands out today for its yield, financial strength, and company-specific business improvements.

• 10 stocks we like better than Chevron ›

Even the best-run energy companies can't avoid the impact that oil and natural gas prices have on the top and bottom lines. But they can take steps to mitigate the impact of commodity volatility and to ensure they have the financial wherewithal to survive the industry's frequent swings. And while energy prices are a little weak, now is a good time to buy this particular high-yield energy giant.

The bad side of energy stocks

Energy stocks are a tough sell for conservative investors because they tend to rise and fall along with the price of oil and natural gas. The business swings that this sector goes through can be harrowing, given that commodity prices often swing dramatically and rapidly. Supply and demand dynamics, geopolitical events, and economic cycles all have a huge impact on the energy sector. But energy is also an important part of the global economy, and most investors should have at least some exposure.

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That's where integrated energy companies come in. This business model includes businesses in the upstream ( oil and natural gas production), the midstream (pipelines), and the downstream (chemicals and refining), all under one single roof. Since each segment of the energy industry operates just a little differently, having a vertically integrated business helps to soften the business swings that companies like Chevron (NYSE: CVX), ExxonMobil, TotalEnergies, BP, and Shell go through.

Those are the largest and most important public independent integrated energy giants. There are other large companies that use the same basic model, but they often have material government ownership, so they aren't as "independent" as you might think. Of the five companies above, Chevron is probably the most attractive right now for long-term investors who are seeking out energy exposure.

Why Chevron? Why now?

Every investment you make requires trade-offs. That's as true of Chevron as it is of technology giant Apple. What you are looking for is the best balance between risk and reward. And Chevron offers a very attractive balance right now.

For starters, the stock is offering a 4.5% dividend yield. That's well above the market and the 3.3% yield of the average energy stock. The dividend has been increased for 38 consecutive years despite the industry's inherent volatility. Clearly, Chevron knows how to survive through the energy cycle while continuing to reward investors well for sticking around.

Data by YCharts.

A big part of that is the company's focus on maintaining a strong balance sheet. Right now, it has the second-best debt-to-equity ratio of its closest peer group at 0.2x. This allows Chevron to add debt during industry downturns so it can continue to support its business and dividend. When energy prices recover, as they always have historically, it simply reduces leverage in preparation for the next downturn.

That said, Chevron had been facing a couple of material headwinds in the recent past. But a difficult merger with Hess has finally closed. And the oil from Chevron's geopolitically contentious Venezuelan exposure is flowing again after, effectively, being shut down. So there are positives taking shape for Chevron despite broader industry weakness. And that should help to set Chevron up for even stronger performance when energy prices recover.

An all-weather oil stock

Chevron looks attractive right now for a couple of company-specific reasons. But the truth is that this integrated energy giant is always a pretty good choice for investors seeking energy exposure. So not only will a $1,000 investment get you around six shares of the stock, but it will also get you an attractive dividend yield with a growing dividend that is backed by a financially strong and well-structured energy business. Even for the most conservative investors, that's probably going to be an enticing risk/reward compromise.

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 Apple and Chevron. The Motley Fool recommends BP. The Motley Fool has a disclosure policy.