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Due to popular demand, it's time for another round of dividend stock wars.

This time, I'm throwing two oil majors into the ring - Exxon (NYSE:XOM) versus Chevron (NYSE:CVX).

Each company declared competitive dividend increases earlier in the month. And each sports a comparable yield and holds relatively equal footing in the industry.

So now it's time to pit them together in a head-to-head competition to reveal which one makes for a better income investment…

Rules of Engagement

As many of you already know, the concept of a stock war couldn't be simpler.

Pit two companies against one another, conduct a blow-by-blow fundamental comparison of each and (based on the results) determine the most investment-worthy stock.

Armed with the analysis, you can then consider buying the winner - or both, if it's a close matchup.

So without further ado, let's start the first match, using our seven guiding principles of dividend investing - plus one more critical fundamental (valuation) - to determine if Exxon or Chevron represents the most compelling income investment right now.

Here's Louis Basenese in with the results of the first round:

~Round 1: Simple Business

As always, we're with Warren Buffett on this one: If you can't understand it, think twice before investing in it.

This holds especially true for income investing. The fewer moving parts, the fewer the risks, and the more likely you'll be getting that dividend next quarter (and the next, and the next).

And nothing, unfortunately, screams "geopolitical mess" like the oil business. Between the ever-changing regulations over fracking, strategic access to the Strait of Hormuz, operational disasters and competing alternative energies, there's no shortage of variables that can drastically impact these investments.

In other words, simplicity isn't on our side for either company.

Normally, this would be a deal breaker. But it's not. Because even when revenue and earnings have taken a hit in the last decade, neither Exxon nor Chevron gave dividends a haircut. This makes the complex nature of oil a bit easier to stomach.

Advantage: Draw

~Round 2: Steady Demand

According to the International Energy Agency's (IEA) April 11, 2013 Oil Market Report, "A weak macroeconomic environment is expected to keep demand growth relatively subdued for the remainder of the year."

In all, the IEA estimates demand growth to clock in at 0.9% in 2013. That's a slight pullback from 2012's growth of 1%, but it's still up from 0.7% in 2011.

That's obviously a problem for both Chevron and Exxon. But revenue is on the rise over the last three years for each company - up 12.12% and 15.8% for Chevron and Exxon, respectively.

So even if global demand has been wavering, both companies have still been able to rake in more revenue, with Exxon maintaining a slight edge.

Advantage: Exxon

~Round 3: Cash Flow Positive

If a company isn't generating cash each quarter, the only way to pay a dividend is by borrowing or tapping into cash reserves. Such practices aren't sustainable over the long term - and the dividend will eventually be cut.

The good news? Both Exxon and Chevron are cash flow positive.

Over a trailing 12-month period, Exxon generated more than two times the cash needed to cover its dividend payments. In comparison, Chevron's free cash flow surpassed the amount it needed to pay out in dividends by just 14% - far less than Exxon by a long shot.

Advantage: Exxon

Round for round, Exxon currently leads, 2-0 (with one draw).

~Round 4: High Cash Balance

Dividend payments don't grow on trees. And neither does money. So we want to make sure that there's enough cushion to sustain dividends through harder times. And the more cash-rich the company, the better.

Fortunately, there's nothing to worry about here for either firm. Normally, I insist on enough cash to cover two quarters' worth of dividends. And both Chevron and Exxon are able to cover that and more.

While Exxon's cash balance of $10 billion is enough to pay four quarters' worth of dividends, Chevron surpasses that by a long shot, holding enough cash on hand to pay nearly three years' worth.

Advantage: Chevron
~Round 5: Minimal Need for Credit

The more pressure there is to pay down debt and reduce payments on interest, the more likely management will give cash distributions the shaft.

Because of the potential squeeze debt can put on cash distributions, finding those companies with manageable amounts of debt on the books should be a priority when looking for long-term dividend investments.

Neither Chevron nor Exxon is debt free, however. Exxon currently holds $8 billion in short-term debt and $9 billion long term. Chevron has racked up $10 billion in long-term debt, but remains debt free in the near term.

It's worth noting, however, that even though the advantage here goes to Chevron, Exxon's AAA credit rating means that its debt is hardly a deal breaker.

Advantage: Chevron

~Round 6: Earnings Buffer

Just like cash, earnings can provide a buffer, as well. We can track this buffer by calculating a company's dividend payout ratio (DPR), which is earnings per share divided by the annualized dividend.

As a general rule, I recommend investing in companies with DPRs of less than 80%. The lower the percentage, the less chance there is of a cut if earnings go south.

And here, neither company is remotely in danger of hitting unmanageable DPR levels. Exxon and Chevron clock in with DPRs of 22.5% and 26.4%, respectively.

Note that even though Exxon has the slight technical advantage here, it's barely appreciable. And both companies are fully capable of continuing to pay and increase dividends even if earnings take a huge hit.

But a win is still a win…

Advantage: Exxon

~Round 7: Dividend Yield and Growth

Exxon and Chevron only yield 2.88% and 3.33%, respectively.

What makes them worthwhile dividend investments, however, is the fact that each company makes dividend growth a priority. Chevron's three-year dividend growth rate checks in at 10.23% and Exxon's at 10.95%.

Still, even though Exxon increases its dividends at a slightly faster rate than Chevron, Chevron has a significantly higher yield. Everything else being equal, that higher yield will net you more cash in the long run than the slightly higher growth rate.

Advantage: Chevron

~Round 8: Valuation

Last, but not least, it's always prudent to make sure you're not overpaying. Higher yields and higher growth rates often require paying higher price-to-earnings (P/E) ratios.

But in this case, given the moderate yields and barely aggressive dividend growth, the P/Es shouldn't be any higher than the current S&P 500 average of 16.8.

Lo and behold, both companies are trading at far less than that - Exxon at just 9 times earnings and Chevron at 9.2. In all fairness, however, that's not enough of a difference to really impact the outcome.

Advantage: Draw

Let's Go to the Scorecard…

After eight rounds, we're at a dead heat, with Exxon and Chevron winning three rounds each and drawing in two.

However, I'm prepared to declare Chevron the winner. Why? Because the companies are trading at similar valuations, but Chevron's yield is higher by a significant margin, making it the better deal.

So there you have it, Chevron (barely) prevails over Exxon, which wraps up this edition of Dividend Stock Wars.

Safe investing,

Ryan Anders

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Dividend Stock Wars, Oil Edition: Exxon Vs. Chevron