Should You Buy Warren Buffett Dividend Stocks Chevron and Occidental Petroleum While Oil Is Under $70 a Barrel?

Since then, Berkshire has bought more Oxy stock, bringing its position to a 27.5% stake in the company. But Berkshire could own much more if it exercised its warrants.

Oxy paid top dollar for Anadarko in 2019, coincidentally outbidding Chevron. Because of the deal, Oxy entered the oil and gas downturn of 2020 overleveraged and saw its stock price fall to single digits. But the subsequent boom in 2021 and 2022 was a huge win for Oxy, which was able to pay down debt thanks to higher oil prices. Then, in late 2023, Oxy announced that it would acquire CrownRock L.P. to boost its Permian Basin exposure further. It closed the deal on Aug. 1, 2024.

Although the deal made Oxy, once again, more leveraged, it could pay off as long as oil prices remain around current levels. Oxy’s latest quarter showed strong results, plenty of free cash flow, and a path toward paying down debt. Despite the good quarter, Oxy’s stock price remains just a few percentage points off its 52-week low, which makes sense given oil prices are also around a 52-week low.

Oxy is a much higher risk, higher potential reward play than Chevron because it is an E&P rather than an integrated major. The vast majority of its portfolio is in one region — the Permian Basin. It also doesn’t have a balance sheet as strong as Chevron’s. In 2020, Oxy slashed its dividend to just $0.01 per share per quarter. It has since brought it back up to $0.22, but the dividend isn’t nearly as reliable as Chevron’s. Chevron also has a higher yield at 4% compared to 1.8% for Oxy.

Oxy would be stretched thin if oil prices tanked and could cut its dividend again, whereas Chevron’s superior financial health would allow it to support its dividend even if its cash flow was negative in the short term. All told, Chevron is a better all-around buy than Oxy, but Oxy will likely outperform Chevron if oil prices go up because it has more to gain.

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Bank of America is an advertising partner of Motley Fool Money. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool recommends Canadian Natural Resources and Occidental Petroleum. The Motley Fool has a disclosure policy.

Should You Buy Warren Buffett Dividend Stocks Chevron and Occidental Petroleum While Oil Is Under $70 a Barrel? was originally published by The Motley Fool