Chevron or Exxon Mobil: Which Is the Better Big Oil Dividend Aristocrat?

The U.S. oil and gas industry is dominated by two integrated giants, Exxon Mobil and Chevron Corp. . Exxon Mobil and Chevron are the two largest oil stocks in the U.S., by a wide margin. They are also the only two energy-sector stocks on the list of Dividend Aristocrats, an exclusive group of 57 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. Exxon Mobil and Chevron have nearly identical business models. And they are similar stocks as well -- Exxon has a 4.3% dividend yield, while Chevron currently yields 4.0%. However, when it comes to growth, the two companies appear to be going in different directions. Exxon's first-quarter report missed expectations on earnings by a wide margin, while Chevron beat earnings estimates. And their future growth could diverge, as Chevron could be on the brink of a game-changing acquisition. A Tale of Two Oil Giants The 2019 first quarter was broadly challenging for Big Oil, as crude oil prices declined versus the same period last year. This made for relatively tough comparisons for the energy sector. Indeed, Exxon Mobil reported first-quarter EPS of $0.55 on revenue of $63.6. Both figures missed analyst forecasts, which called for EPS of $0.68 on revenue of $67.3 billion. Lower oil prices were also a drag on Chevron's top-line last quarter. Revenue of $35.2 billion missed estimates by $3.2 billion for the first quarter. However, Chevron turned in quarterly EPS of $1.39, which beat analyst expectations by $0.16 per share. The main difference between the two oil giants' results last quarter was that Exxon experienced larger-than-anticipated refining shutdown and maintenance costs. Refining margins weakened last quarter for both companies. Chevron's U.S. downstream profits fell 51%, but the company still generated $217 million in downstream earnings for the quarter. Meanwhile, Exxon posted a loss of $161 million in its U.S. downstream operations, due to higher scheduled maintenance. Chevron also outperformed Exxon when it comes to U.S. upstream operations, which include exploration and production of oil and gas. As previously mentioned, both companies were negatively impacted by falling commodity prices last quarter. But while Chevron's U.S. upstream earnings increased by 15% to $748 million, Exxon's U.S. upstream profits fell 78% to just $96 million. Exxon's upstream earnings were negatively impacted by a $115 million asset impairment charge. Investors can expect this trend to continue in future quarters, particularly if Chevron is successful in its biggest growth initiative in years -- the possible takeover of oil and gas producer Anadarko Petroleum , although that appears to be in doubt after Occidental Petroleum's rival bid and backing from Berkshire Hathaway . Chevron Hits the Gas, Exxon Goes Into Neutral Going forward, Chevron likely has the stronger growth outlook of these two oil stocks. The first reason is because its own production forecast is far more aggressive than Exxon's. For example, Chevron's worldwide net oil-equivalent production was 3.04 million barrels per day last quarter, an increase of 7% from the same quarter last year. By contrast, Exxon's total production increased a tepid 2% last quarter. In addition, Chevron expects to grow its output by another 4% to 7% this year and by 3-4% per year until 2024, even without the benefit of the Anadarko acquisition. If Chevron's attempt to acquire Anadarko is successful, it will provide a huge boost to its future production. Anadarko is a major oil producer, particularly in the high-quality Permian Basin, one of the most prolific oil fields in the United States. Anadarko's premier assets would provide Chevron with 10 billion barrels of oil resources, at a cost of less than $3 per barrel. The cost of the acquisition is noteworthy -- Chevron anticipates the total enterprise value of the deal to be upward of $50 billion. And this figure may rise, especially since, as mentioned, Anadarko subsequently received a higher offer from fellow oil and gas producer Occidental, meaning Chevron may have to sweeten its own offer to close the deal. Still, the benefits of the acquisition are clear. With Anadarko on board, Chevron's total production would rise from 3 million barrels per day, to 3.6 million barrels per day, an instant 20% boost. Chevron would be within reach of Exxon's production rate of 3.8 million barrels per day. Plus, since Chevron already has a well-run operation in the Permian Basin, it expects to generate $2 billion in annualized cost synergies. Because of this and the immense strategic benefits of Anadarko's high-quality assets, Chevron expects the deal to be accretive to shareholders in the first year after closing. Chevron's ambitious production growth forecast shows that it is a nimbler operator than its larger peer Exxon. As the largest publicly-traded energy company in the world, Exxon is finding it harder to grow. It continues to be dragged down by asset impairments and elevated refining maintenance costs, a possible indication that it has become a lumbering giant. The Better Big Oil Stock Investors attempting to select between Exxon Mobil and Chevron have a fairly straightforward choice. Exxon is the steadier pick for more risk-averse investors. It has a higher dividend yield than Chevron, 4.3% to 4.0%, and a stronger balance sheet. However, Chevron is the better stock for investors more interested in growth. Chevron was already slated to grow production at a higher rate than Exxon over the next several years, and will nearly catch Exxon if the acquisition of Anadarko is successful. With a 4.0% dividend yield, Chevron investors are certainly not starving for income. As a result, Chevron is the better Big Oil dividend stock today. (Anadarko is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells APC? Learn more now.)

Chevron or Exxon Mobil: Which Is the Better Big Oil Dividend Aristocrat?

Investors attempting to select between the two stocks have a fairly straightforward choice.

Columnist Conversation

Fibocall: The SPX-Cash Long-Term View

Added Some Apple

Added Some HD, MRTX

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.