Since the onset of the COVID-19 pandemic, oil prices have experienced dramatic fluctuations, underscoring the inherent volatility of the energy sector. However, certain key factors contribute to the relatively lower volatility of dividend-yielding stocks within this space. This dynamic positions companies such as Chevron Corporation (CVX Quick QuoteCVX - Free Report) , Phillips 66 (PSX Quick QuotePSX - Free Report) and Exxon Mobil Corporation (XOM Quick QuoteXOM - Free Report) for potential growth, prompting investors to monitor these stocks as they seek stability amid market uncertainty.

Turbulent Energy Market Landscape

Oil prices' behavior since the COVID-19 pandemic has provided a critical lesson for investors. In the early stages of the outbreak, marked by significant uncertainty and the absence of vaccines, oil prices experienced unprecedented volatility. West Texas Intermediate crude fell to an extraordinary low of negative $36.98 per barrel on April 20, 2020.

However, as vaccines were rapidly developed and global economies began to reopen, oil prices rebounded sharply, reaching $123.64 per barrel by March 8, 2022. Oil price data are per the U.S. Energy Information Administration. West Texas Intermediate crude has again currently crossed $75 per barrel.

Dividend Stocks to the Rescue

Overall, the oil pricing scenario appears daunting, which may discourage investors from allocating capital to energy companies. However, dividend-paying companies in the sector present a compelling investment opportunity. Firms with a stable dividend history tend to exhibit lower volatility than those without a track record. Companies committed to rewarding shareholders with consistent or growing dividends are likely to prioritize maintaining or increasing payouts, enhancing their appeal. This commitment to dividends often makes these stocks less sensitive to market fluctuations, providing a more stable investment option within the energy sector.   

We have employed our Stock Screener to zero in on three such stocks. All the stocks carry a Zacks Rank #3 (Hold). With a dividend yield of more than 2%, all the companies have raised dividends in the past five years. With a payout ratio of less than 60%, the companies ensure sustainability with enough scope for future dividend increases. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3 Stocks to Keep an Eye on: CVX, PSX, XOM

Chevron’s Dividend Yield More Impressive Than Industry

Chevron is a leading integrated energy company with a solid balance sheet to support future dividend increases. Over the past year, the energy giant has mostly been paying higher dividend yields than the composite stocks belonging to the industry. (Check Chevron’s dividend history here).

Phillips 66’s Diversified Business Model to Secure Dividends

Phillips 66 is a diversified energy manufacturing and logistic player with a presence in Midstream, Chemicals, Refining and Marketing and Specialties businesses. With a strong focus on disciplined capital allocation and maintaining financial strength, PSX is well-positioned to continue rewarding shareholders with dividend growth. Phillips 66 pays a quarterly cash dividend on the common stock of $1.15 ($4.60 annualized) per share. (Check Phillips 66’s dividend history here).

ExxonMobil’s Proven Dividend Strength Over Decades

ExxonMobil is among the largest integrated energy companies in the world and has raised its dividend at an average annual growth rate of 5.8% in the past 41 years. The energy major can rely on its strong balance sheet to withstand any business turmoil and hence can support future dividend payments. (Check ExxonMobil’s dividend history here).