SPECIAL REPORT The Top 7 Stocks for 2024

3 Oil Stocks With Strong Free Cash Flow


  • Investors interested in strong free cash flow yields should look no further than these three oil giants.
  • Exxon Mobil (XOM): Exxon maintains strong free cash flow, and its Guyana operations provide many opportunities.
  • Chevron (CVX): Operational efficiency has resulted in Chevron approving a $1.51/share dividend for December.
  • Valero Energy (VLO): Resilient fuel demand has allowed the oil giant to beat Q3’23 earnings.
oil stocks - 3 Oil Stocks With Strong Free Cash Flow

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Oil prices have been on a roller coaster ride in 2023, influenced by geopolitical events, dwindling reserves in the U.S., and broader speculation about the global economy. Saudi Arabia and Russia are fulfilling their production cuts to support the market and prevent a glut, which kept oil prices elevated. The ongoing conflict between Israel and Hamas has escalated into a full-scale war. It has increased the possibility of a wider Middle East conflict, effectively raising the risk of regional instability and disruption to oil facilities and transit routes. This has led to a large impact on oil stocks.

Investors may seek oil stocks that generate strong free cash flow and withstand price volatility in this context. Below are three oil stocks that fit this criterion.

Exxon Mobil (XOM)

Exxon Retail Gas Location
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Exxon Mobil (NYSE:XOM) is one of the largest integrated oil and gas companies in the world, with operations in exploration and production, refining and marketing, chemicals, and power generation.

The company has a diversified portfolio of assets across geographies and segments gives it resilience and flexibility. Exxon Mobil has also invested heavily in low-carbon technologies, such as carbon capture and storage, hydrogen, biofuels, and renewable power. Moreover, the oil giant has been able to develop its operations in Guyana, which has increasingly become a key player in the global oil market. It’s one of those oil stocks to consider.

Exxon Mobil has generated large sums of free cash flow this year. On a year-to-date basis, the company reported more than $28 billion in non-GAAP free cash flow, driven by higher crude prices and a larger volume of refining throughput. After reporting its third-quarter earnings, the oil company declared a $0.95 per share dividend for the fourth quarter, implying a 3.7% annualized dividend yield.

Chevron (CVX)

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Chevron (NYSE:CVX) is another major integrated oil and gas company with a strong presence in the U.S., Australia, Kazakhstan, Angola, Nigeria, and Brazil. The company has developed a balanced mix of upstream and downstream assets and a growing exposure to renewable energy sources, such as solar, wind, geothermal, and biofuels.

Like other large oil companies, Chevron has been focusing on cost reduction and capital discipline to enhance profitability and cash flow generation, resulting in shareholders benefitting from juicy dividends and share buyback programs.

Over the past three quarters, Chevron has reported a cumulative $19 billion net income and $15.9 billion free cash flow. Despite lower Y/Y revenue figures, the strong cash flow generation was driven by the company’s operational efficiency. Chevron has committed to paying a quarterly dividend of $1.51/share in December.

Valero Energy (VLO)

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Valero Energy (NYSE:VLO) is one of the largest independent refiners in the U.S., with a refining capacity of 3.2 million barrels per day across 15 refineries. The refining company also has a midstream segment that transports and stores crude oil and refined products and an ethanol segment that produces and markets ethanol. Valero Energy has been benefiting from the recovery in refining margins and demand for transportation fuels in the U.S. and its strategic investments in renewable diesel and jet fuel production.

A couple of weeks ago, Valero reported third-quarter results and beat Wall Street’s profitability estimates. While margins decline year-over-year, resilient fuel demand and tighter supplies helped Valero’s financial figures rise above expectations. The company also noted its refineries operated at a 95% utilization rate. Strong free cash flow generation has allowed Valero to continue strong dividend payouts.

On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

Article printed from InvestorPlace Media, https://investorplace.com/2023/11/3-oil-stocks-with-strong-free-cash-flow/.

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