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Looking for a company that’s quick to pass on earnings gains to investors? Meet Freehold Royalties Ltd. (TSX: FRU), a fossil fuel company that saw its profits shoot up as oil and natural gas prices rose.
Most companies only increase their dividend once a year (if they do so at all). Freehold has bumped its return four times in the past 12 months. Here’s what you need to know:
Calgary-based Freehold is a dividend-paying oil-and-gas royalty company with assets predominately in western Canada, although it is expanding in the U.S. Its primary focus is to acquire and actively manage royalties, while providing a lower-risk income vehicle for shareholders. Freehold has one of the largest independently owned portfolios of royalty lands in Canada, with land holdings totaling more than 6.7 million gross acres.
Freehold has been quick to share its improving earnings with stakeholders. It has raised its monthly payment four times in the past year and now yields over 6%.
Third-quarter results showed a year-over-year revenue increase of 120%, to $50.9 million. Net income jumped to $22.7 million ($0.17 a share) from $139,000 in the same quarter of 2020. Total production increased by 23%, to 11,265 barrels of oil equivalent per day.
The company is actively expanding its base, with four recent purchases. Three involve U.S.-based assets, with the largest deal valued at $227 million. Management said the deal will significantly enhance Freehold’s North American portfolio and will improve both the near-term and long-term sustainability of the company’s dividend.
As recent history has shown, this can be a volatile stock. The dividends and the share prices depend heavily on the prices of oil and natural gas. The company was quick to hike dividends as energy prices improved. It will lower them again just as fast if we see a price plunge.
Dividends are paid monthly. The current rate is $0.06 per share. The dividends are eligible for the dividend tax credit if held in a non-registered account.
This security is suitable for investors who are willing to take on above-average risk in exchange for a 6.2% yield and the potential for future dividend increases if natural gas and oil prices stay high. The shares trade on the TSX, with an average daily volume of almost 650,000. They are also listed on the U.S. over-the-counter market under the symbol FRHLF.
The company has turned itself around, and the new emphasis on acquiring U.S.-based royalties looks promising.
Freehold Royalties Ltd. (TSX: FRU)
Type: Common stock
Recent price: $11.72
Annual payout: $0.72
Yield: 6.4%
Risk: Higher risk
Website: www.freeholdroyalties.com
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
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Notes and Disclaimer
Content © 2022 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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