Chevron (CVX) trades at a 3.5 percent dividend yield, more than triple the S&P 500's approximate 1 percent yield. Occidental Petroleum (OXY) yields 1.9 percent—also above the broad market, but Occidental's trailing 12-month payout ratio of 30 percent appears safer than Chevron's 66 percent.
That metric is misleading in energy. Oil price swings distort earnings enough to make payout ratios worthless as a snapshot. One quarter ago, both companies reported ratios above 100 percent. Cyclical industries demand a different test: How has management acted when stress tested?
Chevron has raised its dividend for 38 consecutive years. Occidental cut its dividend in 2020 after loading up debt to outbid Chevron for Anadarko Petroleum just before the pandemic cratered oil prices. The company slashed the payout to preserve cash and attack leverage.
Occidental's balance sheet has improved sharply since. Debt-to-equity fell from 2.0x in 2021 to 0.35x today. That matters—it means the dividend is less vulnerable to the next oil crash.
But Chevron's leverage remains even lighter at 0.2x. During the 2020 downturn, Chevron's debt-to-equity barely moved to 0.37x—the level Occidental sits at right now. Scale helps too: Chevron's $390 billion market cap dwarfs Occidental's $59 billion, giving Chevron more firepower to defend dividends if energy prices collapse again.
For income investors who remember 2020, Chevron's track record of never cutting—even when tested—is the more valuable insurance.
