Legendary investor Warren Buffett's time-tested value investing strategies set him apart in the investing world. His approach of buying great businesses at low prices for the long term continues to help Berkshire Hathaway stocks navigate market volatility, up 12.86% year-to-date (YTD) and over 91% in the past five years during the pandemic and global conflicts.
In recent years, Buffett has consistently allocated cash to energy stocks, which account for 10% of his $331 billion portfolio. He bought over 7 million shares of Occidental Petroleum at an average price of $60 in early June when oil prices were as low as $77.52 a barrel. Since then, oil prices have steadily climbed to above $83 on July 7, which can reap profits for Occidental Petroleum and Chevron, a petroleum refineries company and the fifth-largest holding in the Berkshire Hathaway portfolio.
Meanwhile, both oil companies are dividend aristocrats. These companies in the S&P 500 index have consistently paid and increased dividends for the last 25 years. There are generally under 100 dividend aristocrats at any given time since these are big, stable businesses that offer recession-proof products for continued growth despite market upheavals.
Chevron (NYSE: CVX)
US-based Chevron Corporation pays a 4.22% dividend yield and participates in energy and chemicals operations via its Upstream and Downstream segments. The stock gained 3.47% YTD to hover above $154 on July 7.
The Upstream segment explores, produces, and transports crude oil and natural gas. Meanwhile, the Downstream segment refines crude oil into petroleum products and develops and markets renewable fuels, industrial plastics, and commodity petrochemicals.
According to Chevron's Q1 earnings release, the company returned $3 billion to shareholders as dividend payouts during the quarter. It reported total earnings of $5.5 billion, more than double that of Q4 2023. However, revenues were lower year-over-year (YoY) due to reduced margins on refined product sales and higher capital expenditures.
Chevron's global production increased 12% YoY, while US net oil-equivalent production jumped 35% YoY after acquiring PDC Energy and showcasing robust operational performance in the Permian and Denver-Julesburg Basins. The company's $53 billion takeover plans for Hess Corporation faced resistance over inadequate disclosures, but Hess shareholders recently backed the merger with Chevron.
In Q1, Chevron also advanced its renewables initiatives, announcing the first solar-to-hydrogen production project, executing a final investment decision to construct an oilseed processing plant in Louisiana, and launching a $500 million Future Energy Fund III to innovate solutions that enable affordable and lower carbon energy.
According to the latest company 13-F filing, Berkshire Hathaway owns 122.98 million Chevron shares worth $19.4 billion, representing 5.85% of the portfolio.
Occidental Petroleum (NYSE: OXY)
Occidental Petroleum is one of the US's largest oil and gas producers. While its shares have remained mostly muted this year with a 2.08% YTD growth, Buffett has aggressively invested in the hydrocarbon exploration company in the last few quarters. He bought 7.26 million oil company shares in June to own 255.28 million shares worth $15.28 billion. The company pays a dividend yield of 1.44% and announced net income attributable to common stockholders of $718 million for Q1.
Berkshire Hathaway owns 255.28 million company shares worth $15.28 billion, accounting for 4.62% of the total portfolio. He now holds an almost 29% stake in Occidental Petroleum and was earlier granted regulatory approval to buy up to a 50% stake. Berkshire Hathaway also has warrants to purchase another 83.9 million common shares for $59.62 apiece. However, the Oracle of Omaha has no plans to assume a controlling stake in the company.
Buffett had previously said he began purchasing Occidental shares after reading the company's earnings conference call transcript, stating that this is "exactly what I would be doing." He believes Occidental Petroleum CEO Vicki Hollub is "running the company the right way," considering the company's ambitious low-carbon energy plans.
Berkshire's renewable energy subsidiary BHE Renewables will commercialise lithium for use in electric vehicle batteries in a new joint venture with Occidental Petroleum's TerraLithium platform. Occidental will leverage TerraLithium's patented Direct Lithium Extraction technologies to extract and produce lithium from geothermal brine. Meanwhile, the Oxy Low Carbon Ventures subsidiary is innovating new-age technologies to grow the company while cost-effectively reducing emissions.
Elsewhere, revenues from its chemical subsidiary OxyChem, which manufactures vinyl and speciality chemicals for diverse industries, exceeded guidance with a pre-tax income of $260 million. The oil company's oil and gas revenue declined quarter-over-quarter in Q1 to $1.2 billion due to reduced oil prices and domestic crude oil volumes.
Dividend Stocks Don't Always Mean Higher Returns
Dividend stocks suit investors looking for stable and passive income streams. Dividend payouts are company profits paid to shareholders and not reinvested in the business. If a business pays a high percentage of profits as dividends to investors, it could mean they have fewer growth opportunities for investment.
Company management sometimes uses dividends to placate investors when the stock price isn't appreciating. A dividend aristocrat can consistently grow regular payouts to shareholders, but they are not usually high-growth leaders and could be squandering growth opportunities.
Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.
