Oil stocks took it on the chin over the past two years. The steep decline in commodity prices caused a great deal of pain throughout the energy sector.

Two of the biggest of Big Oil, Exxon Mobil (XOM) and Chevron (CVX), held up relatively well.

While many oil and gas stocks cut their dividend payouts to stay afloat, Exxon Mobil and Chevron continued to raise their dividends through the downturn.

Both Exxon Mobil and Chevron are Dividend Aristocrats. The Dividend Aristocrats are a group of 51 companies in the S&P 500 Index that have raised their dividends for 25+ years in a row.

Exxon Mobil has increased its dividend for 34 consecutive years, while Chevron has raised its dividend for 29 years in a row.

If an investor were interested in buying just one of these two dividend oil stocks, this article will discuss which is the better stock.

Business Overview

Winner: Toss-Up

Operationally, Exxon Mobil and Chevron are very similar. They are both integrated oil and gas companies, meaning they possess the upstream and downstream segments under one roof.

Upstream, which refers to exploration, discovery, and production of oil and gas, was the hardest-hit area by the collapse in commodity prices.

This is because upstream activities rely on the price of the underlying commodity for profitability.

Exxon Mobil’s upstream business lost $4.2 billion in 2016. This was due in large part to a $2 billion reserve impairment charge.

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Source: 4Q Earnings Presentation, page 21

Chevron fared a bit better; its upstream business lost ‘just’ $2.5 billion last year.

In addition, Exxon Mobil and Chevron have large downstream businesses, which includes refining.

Oil refining actually benefited from volatility in oil prices, because it widened refinery profit margins by lowering input costs.

Refining profits helped the integrated majors fare much better than independent upstream companies in 2015 and 2016.

Last year, Exxon Mobil and Chevron earned $4.2 billion and $3.4 billion from refining, respectively.

The two companies are nearly identical in terms of business overview. However, their future growth could differ, due to Chevron’s widening lead in the international markets.

Growth Prospects

Winner: Chevron

Analysts expect Exxon Mobil to grow earnings-per-share by 13% in 2018. Meanwhile, Chevron is expected to post 49% earnings-per-share growth next year.

Perhaps the biggest reason for Chevron’s more ambitious growth forecast is its production growth strategy.

Going forward, Chevron intends to increase production by 4%-9% in 2016, excluding the impact of asset sales.

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Source: February 2017 Investor Presentation, page

Much of Chevron’s expected production growth is due to the completion of its huge Australian liquefied natural gas (or LNG) projects, Gorgon and Wheatstone.

Put together, Gorgon and Wheatstone have annual production capacity of more than 24 million tonnes of natural gas.

And, because they are in Australia, they are perfectly situated geographically to serve booming energy demand in Asia.

The Gorgon project started up in 2016, and by February 2017 had shipped 39 cargos. Meanwhile, Wheatstone is expected to ship its first cargo by mid-2017.

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Source: February 2017 Investor Presentation, page 15

This could have dramatic implications when it comes to international growth. Chevron’s international business is performing very well.

International earnings rose 34% in the fourth quarter for Chevron, thanks mostly to the contribution from Gorgon.

Exxon Mobil cut capital expenditures by 38% in 2016, a steeper cut than Chevron’s 34% spending reduction.

Such a sharp reduction in spending helped Exxon Mobil remain profitable last year, while Chevron posted a $497 million net loss.

But it could also restrict Exxon Mobil’s ability to grow earnings and dividends going forward.

Exxon Mobil’s production is set to grow only modestly up ahead.

At its 2017 Analyst Meeting on March 1, ExxonMobil stated its annual production would rise to 4.0-4.4 million barrels per day by 2020.

That guidance represents only a modest acceleration from last year’s average production, of 4.1 million barrels.

This could put Chevron in a more advantageous position, particularly if oil and gas prices continue to recover.

Dividend History

Winner: Exxon Mobil

When it comes to dividend track records in the oil industry, Exxon Mobil is second-to-none. It has paid uninterrupted dividends for more than a century.

It should also be noted that Chevron has taken some liberties in its dividend growth in recent years.

For example, Chevron did not raise its dividend from May 2014-November 2016.

Technically, it continues to qualify as a Dividend Aristocrat. But Exxon gets the nod here for its adherence to raising its dividend every four quarters.

Exxon Mobil also deserves mention for having a more sustainable payout when times get tough. Neither company covered their 2016 dividend payouts with underlying earnings-per-share.

But Exxon Mobil generated positive earnings-per-share of $1.88, demonstrating it has a stronger ability to remain profitable, during one of the worst times for oil stocks in decades.

Exxon Mobil generates industry-leading returns on capital. It also has a best-in-class balance sheet.

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Source: 2017 Analyst Meeting, page 13

These qualities provide its dividend with more security than Chevron’s, in challenging times like the last two years.

Put differently, Exxon Mobil is the best company to invest in throughout the oil price cycle.

But, if the industry is about to enter an environment of rising commodity prices, Chevron provides more exposure to the upside.

This could make Chevron the better dividend growth stock over the next several years.

Dividend Yield & Dividend Growth

Winner: Chevron

Chevron has a current dividend yield of 3.8%, above Exxon Mobil’s 3.6% dividend yield.

And, Chevron could capitalize on rising commodity prices to a greater extent than Exxon, because of its more aggressive production growth.

Another reason to expect higher dividend growth rates from Chevron is that it focuses on its dividend more intently, within its broader capital return program.

Chevron has proven to be more willing to cut back on share buybacks when times get tough. To that end, the company suspended share repurchases last year.

Exxon Mobil has continued repurchasing shares, including $977 million spent on buybacks last year.

Because of Chevron’s expected earnings-per-share growth in 2018, it could raise its dividend at higher rates than Exxon Mobil, in 2018 and beyond.

Final Thoughts

Both Exxon Mobil and Chevron are well-run companies that provide reliable dividends, and the potential for dividend growth each year.

Investors certainly could not be blamed for owning Exxon Mobil and Chevron, since they are both Dividend Aristocrats.

But for those interested in only buying one, Chevron has a higher current dividend yield.

And, thanks to its prime position to capitalize on booming demand for energy in the emerging markets, it has better dividend growth prospects moving forward.