TLDR
- Energy sector remains undervalued with stocks trading at just 7 times enterprise value to EBITDA, half the S&P 500’s valuation
- Chevron offers 4.7% dividend yield with 38 consecutive years of dividend increases and strong balance sheet
- TotalEnergies provides 6.3% yield while investing in clean energy transition without cutting dividends
- Natural gas demand stays strong driven by AI infrastructure needs and potential trade agreement benefits
- Exxon Mobil could repurchase 20% of market cap over five years with $110 billion expected free cash flow
The energy sector continues to face headwinds in 2025, with the Energy Select Sector SPDR ETF gaining just 3.3% year-to-date. This performance trails the S&P 500’s nearly 6% gain and ranks as the third worst-performing sector.
Despite weak performance, energy stocks present compelling value opportunities for investors. The sector trades at just over seven times enterprise value to EBITDA, roughly half the S&P 500’s valuation multiple.
Energy companies also generate approximately twice the free cash flow of the broader index. The sector has become more disciplined with cash management and committed to shareholder returns than at any point in recent history.
Oil prices face continued pressure from increased OPEC output this year. The sector is experiencing its first decrease in exploration and production spending globally since 2020, though conditions may improve in 2026.
Natural gas demand remains strong, driven by energy-hungry artificial intelligence infrastructure. Countries like Japan and South Korea could increase American LNG imports as part of trade negotiations, providing another demand boost.
High-Yield Dividend Options
Chevron stands out with a 4.7% dividend yield and exceptional dividend track record. The company has increased its dividend annually for 38 consecutive years, supported by conservative financial management.
Chevron maintains a debt-to-equity ratio of roughly 0.2 times, among the lowest in its peer group. This strong balance sheet provides flexibility during industry downturns while supporting dividend payments.
TotalEnergies offers an even higher 6.3% yield while pursuing a unique strategy. The French energy giant uses carbon fuel profits to invest in the energy transition without cutting its dividend.
TotalEnergies has increased its dividend annually in recent years while accelerating clean energy investments. This contrasts with European peers BP and Shell, which cut dividends during their energy transition attempts.
Integrated Energy Advantages
Both Chevron and TotalEnergies operate as integrated energy companies with exposure across the entire value chain. This diversification helps soften fluctuations in energy prices compared to pure-play drillers or refiners.
Commodity prices remain the primary driver of both companies’ businesses and stock prices. However, integrated operations provide better stability during volatile periods.
Individual Stock Opportunities
Exxon Mobil’s diversified operations position it to succeed across various energy environments. The company expects to generate up to $110 billion in free cash flow even with oil prices as low as $55 per barrel.
This cash generation could support approximately $20 billion in annual share buybacks over the next five years. Such repurchases could potentially reduce the company’s market capitalization by roughly 20%.
Pipeline operators Kinder Morgan and Williams Companies benefit from AI-driven natural gas demand. Both companies operate transportation networks that are difficult for competitors to replicate.
Expand Energy, formed from the merger of Chesapeake Energy and Southwest Energy, benefits from natural gas strength. The company’s assets in well-positioned geographies support AI infrastructure power needs.
Recent weak oil prices have pressured energy stocks, lifting dividend yields to attractive levels. Current valuations present opportunities for both conservative dividend investors and those seeking energy transition exposure.
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