Devon Energy vs. ExxonMobil: Choosing the Better Oil Stock

In recent months, the price of West Texas Intermediate crude oil has experienced significant fluctuations, rising approximately 15% before subsequently dropping to a nearly 4% gain. Various factors, including supply and demand dynamics and geopolitical influences, have contributed to this price volatility, which is a common occurrence within the energy sector.

This brings us to a comparison between two major players in the oil industry: ExxonMobil and Devon Energy.

Understanding Exxon and Devon

Devon Energy is classified as an upstream company, specializing in the production of oil and natural gas. The company focuses exclusively on drilling within the United States. Consequently, Devon's stock tends to be highly volatile, as its financial performance is primarily influenced by the fluctuating prices of oil and gas. Unlike more diversified companies, Devon does not have other divisions that can mitigate the impact of price swings.

In contrast, ExxonMobil also operates in the upstream sector, where oil and natural gas prices similarly affect its financial performance. However, ExxonMobil benefits from a diversified business model, operating not only in upstream but also in midstream and downstream sectors.

The midstream segment focuses on energy transportation, such as pipelines, which usually generates stable cash flows throughout energy cycles. Meanwhile, the downstream segment includes refining and chemical operations. Although these areas can be volatile in their own right, they often move in opposite directions to the upstream, helping to balance Exxon's overall financial results.

As a result, while both companies' fortunes are linked to energy prices, ExxonMobil's broader scope tends to lead to less extreme financial fluctuations compared to a pure-play producer like Devon Energy. This diversification is a significant advantage for ExxonMobil.

Evaluating the Better Oil Stock

There is no clear answer as to which company—ExxonMobil or Devon Energy—is better. Each appeals to different types of investors. ExxonMobil is well-suited for more conservative investors due to its diversified model. Additionally, the company has a strong track record of increasing its dividend for an impressive 42 consecutive years. This reliability is attractive even to those who may not prioritize dividends, showcasing the resilience of the business. ExxonMobil currently offers a dividend yield of 3.5%, which is significantly higher than the market average yield of 1.2%, although it is not particularly high in comparison to ExxonMobil's historical yields.

Investors aiming to add energy exposure to a stable income portfolio may find buying ExxonMobil advisable. The company demonstrates a robust balance sheet, positioning it well to manage potential downturns in the energy market. However, for those who prefer value opportunities or higher yields, it may be wise to wait for a downturn to secure better buying prices.

In contrast, Devon Energy may not attract conservative investors, particularly as its current yield of 3.3% is slightly lower than ExxonMobil's. Therefore, who might prefer Devon over Exxon? Investors with strong convictions about rising energy prices may find Devon attractive. However, attempting to time the market can be a risky strategy with uncertain outcomes.

Despite the challenges, Devon Energy is a respected company boasting a low breakeven point and a substantial drilling inventory. Its ability to maintain dividend payments over the years reflects its sound management practices.

It's worth noting that in recent times, Devon has shifted to paying variable dividends that correlate with its financial performance. Increased energy prices post-COVID-19 resulted in higher dividends, but as prices normalize and the company focuses on reducing debt from acquisitions, those extra dividends have lessened.

While Devon's financial results may be subject to volatility, the company is still achieving growth amidst competition from larger players like ExxonMobil. Thus, it remains a viable option, albeit better suited for more adventurous investors.

Final Considerations: Exxon or Devon?

Ultimately, the decision between investment in ExxonMobil and Devon Energy largely depends on individual risk tolerance and investment goals. A significant downturn in the energy sector could provide more attractive entry points for both stocks, making current assessments important. Conservative investors may prefer ExxonMobil for its broad industry exposure, while aggressive investors bullish on future energy prices may lean towards Devon Energy.

In summary, understanding each company's structure and market position will help potential investors make informed decisions that align with their investment strategies.

oil, stock, investing, energy, dividend