Is TotalEnergies Trading at a Fair Value in 2025? Balancing Dividend Yield and Growth in a Transformed Energy Sector

In 2025, TotalEnergies (TTE) stands at an inflection point in the energy transition, offering investors a rare blend of high dividend yield and strategic growth initiatives. With a forward price-to-earnings (P/E) ratio of 8.46 and a dividend yield of 6.21%, the stock appears undervalued relative to its peers in the low-growth, high-yield energy sector. But is this valuation justified? To answer, we must dissect the company's financials, its renewable energy ambitions, and how it stacks up against traditional energy giants like ExxonMobil and Chevron.

Dividend Yield: A Magnet for Income-Seeking Investors

TotalEnergies' 6.21% yield, supported by a sustainable payout ratio of 56.77%, is among the most attractive in the energy sector. This yield is bolstered by $14.69 billion in free cash flow, enabling the company to maintain its dividend while funding $2 billion in share buybacks. The 7.6% increase in the 2025 second interim dividend to €0.080/share underscores management's confidence in its capital structure, with gearing normalized at 15%.

By comparison, Chevron and ExxonMobil offer yields of 3.6% and 3.8%, respectively, while Shell and BP hover near 4%. TotalEnergies' premium yield reflects its ability to balance shareholder returns with reinvestment in growth. Unlike peers who scaled back dividends during their clean energy transitions, TotalEnergies has maintained—and even increased—its payouts, signaling a disciplined approach to capital allocation.

Growth Initiatives: A Renewable Energy Play with Legs

While the dividend is compelling, TotalEnergies' long-term value hinges on its renewable energy strategy. In 2025, the company is investing $17–17.5 billion, with $4.5 billion earmarked for low-carbon projects. This includes the 640 MW Yunlin offshore wind project in Taiwan and expansion of its Integrated Power segment, which generated $506 million in adjusted net operating income in Q2 2025 despite a 17% revenue decline.

The broader industry is racing to fill a 57 GW renewable energy demand gap by 2030, driven by AI, data centers, and direct air capture (DAC) plants. TotalEnergies' $40 billion target for renewable investments by 2030 aligns with this trend. Its focus on green hydrogen, long-duration energy storage, and enhanced geothermal systems (EGS) positions it to capture value from 24/7 clean energy solutions—a niche where many peers lag.

Valuation: Undervalued or Overlooked?

At a forward P/E of 8.46, TotalEnergies appears cheap relative to its 11.71% return on equity (ROE). The stock trades at a discount to its book value and has a price-to-free-cash-flow ratio of 4.3, metrics that suggest it is undervalued. However, the company's ROE is constrained by its debt load (15% gearing) and the capital intensity of its renewable projects.

The key question is whether investors are adequately rewarded for the risks of its transition. TotalEnergies' dual strategy—leveraging oil and gas cash flows to fund renewables—reduces volatility compared to peers. Yet, its renewable segment currently contributes just 10% of adjusted operating income, a figure expected to grow to 25% by 2030. This gradual shift may underwhelom short-term investors but aligns with long-term decarbonization trends.

Peer Comparison: A Strategic Differentiator

TotalEnergies' peers are either slower to pivot or have abandoned clean energy goals. Chevron, for example, prioritizes cost efficiency over renewables, while Shell and BP have scaled back their 2035 net-zero targets. TotalEnergies' commitment to tripling renewable capacity by 2030, coupled with its higher yield, creates a unique value proposition.

Investment Thesis: A Balanced Approach

For income-focused investors, TotalEnergies' yield and buybacks are hard to ignore. Its 56.77% payout ratio ensures sustainability, even in a downturn. However, growth-oriented investors must weigh the company's hybrid model. While the renewables segment is expanding, it remains a smaller part of the business. The stock's valuation discount could narrow if the market reprices energy transition risks or if TotalEnergies accelerates its clean energy returns.

Recommendation: TotalEnergies is a compelling choice for a diversified portfolio seeking both income and growth. The stock's undervaluation and strategic alignment with the energy transition justify a long-term hold. However, investors should monitor its progress in scaling renewable assets and the impact of geopolitical shifts on oil and gas demand. For those with a 5–10 year horizon, the current yield and growth trajectory make it a standout in a sector still grappling with its identity in the 21st century.

In conclusion, TotalEnergies' 2025 valuation reflects a company navigating the crossroads of legacy energy and the future. Its high yield and strategic investments in renewables create a compelling case for investors who can balance short-term income with long-term transformation. As the energy sector evolves, TotalEnergies may prove to be one of the few stocks that bridges the gap between old and new.