Key Points
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Chevron is a global energy giant with a highly diversified business.
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The energy company regularly adjusts its portfolio of assets.
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Chevron has inked a deal with Hess Midstream LP that will entail a high up-front cost but will better position Chevron for the long term.
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Chevron (NYSE: CVX) offers an attractive 3.1% yield, backed by 38 consecutive annual dividend increases. It is the kind of energy stock that even a conservative dividend investor can comfortably buy and hold for the long term. A key part of Chevron’s success, however, is its willingness to think long term, even if that entails material up-front costs.
Here’s why Chevron’s agreement with Hess Midstream LP (NYSE: HESM), which will require a write-off of up to $4 billion, is the perfect example of the long-term thinking that makes Chevron a buy-and-hold energy stock.
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Chevron is a financially strong industry giant
The first thing that you need to understand about Chevron is its scale. With a market cap of around $440 billion, it is one of the world’s largest energy companies. It has operations around the world and spread across the entire energy value chain, from the upstream (production) through the midstream (pipelines) and all the way to the downstream (chemicals and refining). The up to $4 billion write-off Chevron is facing from its deal with Hess Midstream is actually a fairly small figure given the company’s size and diversification.
Moreover, Chevron has one of the strongest balance sheets among its integrated energy peer group. With a debt-to-equity ratio of roughly 0.2x, only ExxonMobil (NYSE: XOM), at around 0.16x, has less leverage right now. Chevron can easily handle the write-off that the deal with Hess Midstream will entail. In other words, don’t worry about the up-front cost; focus on the long-term benefit.
What exactly is Chevron doing with Hess Midstream?
On the surface, the deal with Hess Midstream is pretty generous for Hess. Chevron is basically giving Hess Midstream assets and eating the cost. That’s why the transaction will involve a one-time write-off of up to $4 billion. The assets in question are Chevron’s ownership interest in Hess Midstream, including its general partner interest, as well as some of Chevron’s own midstream assets.
Before getting into what Chevron is getting out of this, it is important to remember that Chevron completed its acquisition of Hess in 2025. The ownership stake in Hess Midstream came along with that transaction. So this move is partly about Chevron cleaning up its portfolio as it integrates the Hess business.
However, Chevron is getting something out of this deal, as it will materially lower its midstream costs in the Bakken region. Management believes the reduction could be as much as 50%, which would be a significant long-term benefit. In fact, controlling costs is a key focus of most oil companies, given that the products they sell are commodities. The lower Chevron’s operating costs are, the more profit it can make over the long term. And the more leeway it has to protect its profits when oil prices eventually fall from their recent highs.
Chevron’s short-term pain will lead to a long-term gain
Chevron’s ability to think long-term is exactly why dividend investors should consider the stock a core energy holding. In fact, despite the up-front cost, the Hess Midstream deal highlights Chevron’s goal of positioning itself to benefit through the entire energy cycle. In other words, don’t look at the up to $4 billion one-time charge as a negative. Look at it as Chevron paying now to benefit from lower costs for years to come, which is likely to be a huge positive in the historically volatile energy sector.
The company’s strong dividend history is proof of Chevron’s success at thinking long term. But don’t overlook the 3.1% yield, which is well above the energy industry average of 2.4%. If you are considering an energy investment right now, Chevron could actually be the buy-and-hold dividend stock you’ve been looking for precisely because of its willingness to make deals like the one it just inked with Hess Midstream.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
