Chevron vs. Occidental: Which Oil Major's Dividend Is Actually Safer?

In the energy industry, Chevron and Occidental Petroleum both offer dividends to investors. While Chevron provides a higher yield of 3.5%, Occidental's yield is still higher than the 1% average return found in the S&P 500 index. However, the safety of each company's dividend depends on various factors. Geopolitical tensions in the Middle East have caused volatility in the oil and natural gas markets, leading to price fluctuations.

This uncertainty makes it challenging to determine which company's dividend is truly safer. Dividend safety can be assessed using the dividend payout ratio, which compares dividends to earnings. Occidental's ratio is currently around 30%, whereas Chevron's is approximately 66%. This suggests that Occidental's dividend is the safer option.

However, oil prices have been relatively high lately, and they have been even higher in the past. During the pandemic, both companies had payout ratios above 100%, indicating potential dividend safety issues. In terms of dividend consistency, Chevron has a remarkable track record, having increased its dividend annually for 38 consecutive years.

In contrast, Occidental cut its dividend during the pandemic when oil prices fell drastically. Occidental's decision to cut the dividend was driven by its acquisition of Anadarko Petroleum, which led to significant debt buildup. Fortunately, Occidental has reduced its leverage since then, with its debt-to-equity ratio dropping from 2x in 2021 to 0.35x today.

Chevron's debt-to-equity ratio is even lower, at 0.2x, and it only rose to 0.37x during the pandemic. Additionally, Chevron is a much larger company with a $390 billion market cap compared to Occidental's $59 billion market cap. Occidental has higher growth potential but has shown that it can jeopardize the dividend in pursuit of expansion.

Despite these factors, Chevron's commitment to its dividend and financial strength make it a more reliable income investment. Furthermore, Stock Advisor analysts have identified 10 top stocks for long-term growth, and Occidental Petroleum is not among them. If you had invested $1,000 in Stock Advisor's top 10 stocks on December 17, 2004, your investment would have grown to $440,710 by August 29, 2026.

In conclusion, while Occidental Petroleum is a well-run energy company, Chevron appears to be the safer income investment based on its consistent dividend payments, lower debt levels, and larger market capitalization.