Monthly Dividend Stock In Focus: Freehold Royalties – Sure Dividend

Revealed on April 1st, 2025 by Felix Martinez

Freehold Royalties (FRHLF) has two interesting funding traits:

#1: It’s a high-yield inventory primarily based on its 8.4% dividend yield.
Associated: Record of 5%+ yielding shares.
#2: It pays dividends month-to-month as an alternative of quarterly.
Associated: Record of month-to-month dividend shares

You may obtain our full Excel spreadsheet of all 76 month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink under:

Combining a excessive dividend yield and a month-to-month dividend renders Freehold Royalties interesting to income-oriented traders. As well as, the corporate is ideally positioned to learn from excessive manufacturing development in exceptionally wealthy useful resource areas in North America. On this article, we’ll talk about the prospects of Freehold Royalties.

Enterprise Overview

Freehold Royalties is targeted on buying and managing royalty curiosity in crude oil, pure fuel, pure fuel liquids, and potash properties in Western Canada and the US. The corporate was based in 1996 and is headquartered in Calgary, Canada.

Freehold Royalties goals to ship development and enticing risk-adjusted returns to its shareholders by buying high-quality property with acceptable danger profiles and lengthy financial lives. It then tries to generate extremely worthwhile lease-out applications for the event of its properties.

Freehold Royalties generates roughly 93% of its revenues from oil and pure fuel liquids and the remaining 7% from pure fuel.

Supply: Investor Presentation

Furthermore, the corporate generates 55% of its income from its properties in Canada and the remaining 45% from its properties within the U.S.

As an oil and fuel royalty firm, it’s only pure that Freehold Royalties has exhibited a extremely unstable efficiency document. The royalties that its new clients are prepared to pay are enormously affected by the prevailing oil and fuel market circumstances and the underlying costs of oil and fuel.

As well as, the oil and fuel manufacturing of its current clients considerably varies from yr to yr, as it’s depending on the prevailing oil and fuel costs. Thus, it’s not shocking that Freehold Royalties has posted losses in three of the final ten years.

Progress Prospects

Freehold Royalties presently enjoys respectable enterprise momentum. The corporate has grown its manufacturing by 38% over the past 4 years to a brand new document degree.

Such a excessive manufacturing development fee is extraordinarily uncommon within the oil and fuel business. To offer a perspective, most oil majors, resembling Shell (SHEL) and BP (BP), have did not develop their output over the past a number of years. This can be a key distinction between Freehold Royalties and most oil and fuel producers.

Then again, Freehold Royalties is inevitably delicate to the oil and fuel business cycles. That is clearly mirrored within the firm’s unstable efficiency document. Over the past decade, Freehold Royalties has did not develop its earnings per share. As well as, the corporate has posted losses in three of the final ten years and negligible income in three of the final ten years.

Freehold Royalties presently enjoys respectable enterprise momentum, not solely due to its excessive manufacturing development but in addition due to the deep manufacturing cuts applied by OPEC in an effort of the cartel to help the worth of oil. The worth of pure fuel has remained depressed this yr, primarily as a consequence of an abnormally heat winter, however oil costs have remained above common. Because of this, Freehold Royalties is more likely to put up above-average income this yr.

Given the respectable enterprise momentum and the cyclical nature of the Freehold Royalties enterprise, we count on roughly flat earnings per share in 5 years from now.

Supply: Investor Presentation

Dividend & Valuation Evaluation

Freehold Royalties is presently providing an exceptionally excessive dividend yield of 8.4%, which is seven instances as a lot because the 1.2% yield of the S&P 500. The inventory is thus an attention-grabbing candidate for income-oriented traders, however the latter ought to be conscious that the dividend just isn’t protected because of the cyclical nature of the oil and fuel business.

Freehold Royalties is paying a beneficiant dividend, however its earnings have decreased considerably vs. the 10-year excessive earnings per share of $1.03 in 2022. Because of this, the payout ratio has risen from 68% in 2022 to 90%. Such a payout ratio is unsustainable over the long term.

Given its dramatic cycles, administration ought to be praised for its pristine steadiness sheet, which is paramount within the power sector. Then again, because of the inevitable swings in oil and fuel costs, Freehold Royalties’ dividend is way from protected. Notably, the corporate has lower its dividend in three of the final ten years.

As well as, U.S. traders ought to be conscious that the dividend acquired from this inventory is determined by the trade fee between the Canadian and U.S. greenback.

In reference to the valuation, Freehold Royalties has traded for 12.4 instances its earnings per share within the final 12 months. We assume a good price-to-earnings ratio of 10.0 for the inventory. Due to this fact, the present earnings a number of is way increased than our assumed honest price-to-earnings ratio. If the inventory trades at its honest valuation degree in 5 years, it’ll incur a -5.9% annualized drag in its returns.

Making an allowance for the flat earnings per share, the 8.4% dividend yield and a -5.9% annualized contraction of valuation degree, Freehold Royalties may provide only a 2.5% common annual complete return over the following 5 years. This can be a low anticipated complete return and therefore we advocate ready for a considerably decrease entry level with the intention to improve the margin of security and improve the anticipated return from this extremely cyclical inventory.

Closing Ideas

Freehold Royalties has a lot better prospects in rising its manufacturing and reserves than most of its friends and presents an above-average dividend yield of 8.4%. The corporate additionally has a rock-solid steadiness sheet, which is more likely to entice some income-oriented traders.

Nevertheless, the corporate’s efficiency document has been extremely unstable as a consequence of its enterprise cycles, and it appears virtually absolutely valued proper now. Due to this fact, traders ought to anticipate a way more enticing entry level.

And see the assets under for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.