Exxon vs Chevron: Battle of the Oil Dividend Behemoths

Tickers in this article: CVX XOM

NEW YORK (TheStreet) -- At a time when few stocks are undervalued due to the five-year bull market, oil giants Exxon and Chevron stand out as high-quality businesses that are cheap relative to the overall market.

Exxon is the largest publicly traded oil and gas corporation in the world, and second-largest publicly traded corporation overall based on its market cap of over $424 billion. Chevron is the third-largest publicly traded oil and gas company, with a market cap of over $242 billion.

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The S&P 500's P/E ratio currently sits at around 19. The historical average P/E ratio for the market is about 15. Exxon and Chevron have not taken part in the overall market rally. Exxon's P/E ratio is just 12.68, while Chevron's is even lower at 12.05.

At close to $100, Exxon shares are down nearly 2% for the year to date while Chevron's, at $127.50, are up nearly 3% for the same period. By contrast, the S&P 500 is up 7.5% for the year to date.

Oil Industry Still Has Strong Growth Ahead

According to the U.S. Energy Information Administration, growing domestic production of natural gas and crude oil continues to reshape the U.S. energy economy, with crude oil production approaching the historical high achieved in 1970 of 9.6 million barrels per day.

Global energy demand is expected to rise from about 500 quadrillion BTUs a year now to over 700 quadrillion BTUs a year in 2040, according to an Exxon report. Energy demand increases will come from population growth and growing GDP in developing markets. Demand increases from population and rising GDP will be partially offset by more efficient energy use in the developed world.

Despite the popularity in renewable energy sources, oil and gas will provide the bulk of energy the world demands for the foreseeable future. Solar, wind and biofuel energy sources are expected to grow at nearly 6% a year over the next several decades compared to less than 1% and 2% average expected growth for oil and gas, respectively. Even with strong growth, alternative energy sources are expected to provide under 30% of total energy demand by 2040, again, according to Exxon.

What can shareholders expect?

Those invested in Chevron will likely see returns of about 12% a year over the next several years from production growth, dividends and share repurchases.

  • Chevron production growth of 7%
  • Chevron dividend yield of 3.4%
  • Chevron share repurchases of 1.6%

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