Month-to-month Dividend Inventory In Focus: Freehold Royalties

Revealed on April 1st, 2025 by Felix Martinez

Freehold Royalties (FRHLF) has two interesting funding traits:

#1: It’s a high-yield inventory based mostly 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 possibly can 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 buyers. As well as, the corporate is ideally positioned to profit from excessive manufacturing development in exceptionally wealthy useful resource areas in North America. On this article, we are going to talk about the prospects of Freehold Royalties.

Enterprise Overview

Freehold Royalties is concentrated on buying and managing royalty curiosity in crude oil, pure gasoline, pure gasoline liquids, and potash properties in Western Canada and america. The corporate was based in 1996 and is headquartered in Calgary, Canada.

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

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

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 gasoline royalty firm, it is just pure that Freehold Royalties has exhibited a extremely risky efficiency report. The royalties that its new prospects are prepared to pay are tremendously affected by the prevailing oil and gasoline market circumstances and the underlying costs of oil and gasoline.

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

Development Prospects

Freehold Royalties presently enjoys respectable enterprise momentum. The corporate has grown its manufacturing by 38% during the last 4 years to a brand new report stage.

Such a excessive manufacturing development price is extraordinarily uncommon within the oil and gasoline trade. To supply a perspective, most oil majors, reminiscent of Shell (SHEL) and BP (BP), have did not develop their output during the last a number of years. This can be a key distinction between Freehold Royalties and most oil and gasoline producers.

Alternatively, Freehold Royalties is inevitably delicate to the oil and gasoline trade cycles. That is clearly mirrored within the firm’s risky efficiency report. Over the last 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 because of its excessive manufacturing development but additionally because of the deep manufacturing cuts applied by OPEC in an effort of the cartel to help the worth of oil. The value of pure gasoline has remained depressed this yr, primarily as a consequence of an abnormally heat winter, however oil costs have remained above common. Consequently, Freehold Royalties is prone to submit 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 buyers, however the latter must be conscious that the dividend is just not protected as a result of cyclical nature of the oil and gasoline trade.

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. Consequently, 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 must be praised for its pristine stability sheet, which is paramount within the vitality sector. Alternatively, as a result of inevitable swings in oil and gasoline costs, Freehold Royalties’ dividend is much from protected. Notably, the corporate has lower its dividend in three of the final ten years.

As well as, U.S. buyers must be conscious that the dividend obtained from this inventory will depend on the trade price 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. Subsequently, 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 stage in 5 years, it should incur a -5.9% annualized drag in its returns.

Taking into consideration the flat earnings per share, the 8.4% dividend yield and a -5.9% annualized contraction of valuation stage, Freehold Royalties might provide only a 2.5% common annual complete return over the subsequent 5 years. This can be a low anticipated complete return and therefore we advocate ready for a considerably decrease entry level with a view to improve the margin of security and improve the anticipated return from this extremely cyclical inventory.

Last 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 stability sheet, which is prone to entice some income-oriented buyers.

Nonetheless, the corporate’s efficiency report has been extremely risky as a consequence of its enterprise cycles, and it appears nearly absolutely valued proper now. Subsequently, buyers ought to look ahead to a way more engaging entry level.

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