Energy Stocks Are Soaring. 3 High-Yield Oil Stocks to Buy Now.

ConocoPhillips returned $9.1 billion to shareholders in 2024 — $3.6 billion through dividends and $5.5 billion in buybacks. It plans to return $10 billion to shareholders in 2025. ConocoPhillips doesn’t have the dividend track record of ExxonMobil or Chevron. However, it recently simplified its dividend, removing its variable return on cash and raising the ordinary dividend. The ordinary dividend is now $0.78 per share per quarter — good for a yield of 3.1% compared to 3.4% for ExxonMobil and 4.1% for Chevron.

Despite their high yields, each company spent more on buybacks in 2024 than on dividends — which showcases the scale of their FCF generation. Buybacks provide a cushion in case oil prices fall. During past downturns, ExxonMobil and Chevron have cut or suspended their buyback programs but have kept raising their dividends — making both companies ultra-reliable passive income sources.

In sum, all three companies are well positioned to make considerable buybacks and pay attractive dividends, which is appealing during a time when other industries are experiencing slow growth and some companies are struggling to support their high yields.

It would be one thing if ExxonMobil, Chevron, and ConocoPhillips’ capital return programs were straining their balance sheets — but that is hardly the case.

All three companies have debt-to-capital (D/C) ratios near 10-year lows.

The D/C ratio helps measure a company’s leverage and dependence on debt financing operations. In the capital-intensive oil and gas industry, some companies use leverage to accelerate growth, but that can also lead to amplified losses. Supporting operations and capital expenditures with FCF is the safer option. That way, if a downturn does happen, the balance sheet can absorb debt without leverage getting out of control.

ExxonMobil, Chevron, and ConocoPhillips all have low price-to-earnings and price-to-FCF ratios, indicating that they are good values.

It’s worth noting that these ratios are based on trailing-12-month results. With oil prices on track to be lower in 2025 than in 2024, margins could come down in the near term. However, the impact of acquisitions and expansions at all three companies could still lead to earnings and FCF growth even at lower oil prices.

With cyclical industries like oil and gas, it’s best not to put too much attention on valuation metrics because of volatility. But they do provide a good ballpark estimate for how a company should be valued in a specific price environment. For example, valuation metrics at all three companies spiked based on losses in 2020 and then looked dirt cheap based on 2022 results when WTI oil prices averaged over $90 per barrel in 2022.

In today’s price environment, valuation metrics provide a good reading of how each company should be valued based on mid-cycle conditions rather than extremes.

ExxonMobil, Chevron, and ConocoPhillips are well positioned to steadily grow their cash flows and pass along profits to shareholders through buybacks and dividends. All three stocks yield considerably more than the S&P 500 average of 1.3%, making them excellent choices for investors looking to boost their passive income.

While energy isn’t typically seen as a safe sector compared to utilities, healthcare, or consumer staples, the highest-quality companies in the sector, like ExxonMobil, Chevron, and ConocoPhillips, can be viewed as safe stocks, given their excellent balance sheets and manageable payouts.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.

Energy Stocks Are Soaring. 3 High-Yield Oil Stocks to Buy Now. was originally published by The Motley Fool