The primary purpose of royalty stocks is to pay out the majority of their earnings to shareholders. These stocks can be from a variety of industries and sizes. In this article, I’ll discuss three Canadian royalty stocks with very generous yields.
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Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) is one of the largest owners and operators of critical and diverse global infrastructure networks. These networks deliver some of the necessities of life to society, such as energy, water, freight, and data. In turn, they provide consistent and growing cash flows over time.
Since 2018, Brookfield has grown its funds from operations at a compound annual growth rate (CAGR) of almost 18% to over $3 billion in 2022. Also, Brookfield’s distributions have grown at a CAGR of 9% since 2009.
As a royalty stock, Brookfield Infrastructure Partners checks all the boxes. Its business is highly predictable, as it’s backed by long-term contracts and regulatory frameworks. Also, its assets are key to modern society and an essential part of everyday life, thus generating strong, growing cash flows.
Today, Brookfield is yielding a very respectable 4.3%. Looking ahead, management is targeting an annual distribution growth rate of 5% to 9%. In its latest quarter (Q1 2023), funds flow per unit increased 12.5% to $0.72.
Freehold Royalties
Freehold Royalties Ltd. (TSX:FRU) is a Canadian oil and gas company that’s engaged in the production and development of oil and natural gas. Actually, Freehold doesn’t take the risk to produce or develop anything. It simply collects the royalties on what other companies produce.
Today, Freehold is oversold – yielding a spectacular 7.6% as the company continues to benefit from strong oil and gas prices. Despite the fact that oil has headed lower recently, it remains historically high, at over $70. In fact, Freehold had a record 2022, with $316 million in funds from operations and a doubling of its dividend to $0.94 per share.
At this time, Freehold continues to benefit from its low-risk royalty business model. For example, Freehold is not responsible for any operating costs. This means that inflation can’t affect its income. Nor is Freehold responsible for exploration costs. This means that exploration costs and failures can’t affect its income either.
For us investors, this translates into relatively safe exposure to the oil and gas market. As far as Canadian royalty stocks go, Freehold is a solid option for energy exposure.
Northwest Healthcare Properties
Northwest Healthcare Properties REIT (TSX:NWH.UN) is an owner and operator of healthcare properties around the world. Its portfolio of properties includes hospitals, medical office buildings, and rehabilitation centres. These buildings are characterized by long-term tenancy, with a weighted average lease expiry of 14 years. They’re also characterized by stability and often supported by government funding.
What this means for Northwest is stable cash flows and distributions that are increasing over time. In 2022, net operating income and revenue both increased 20%. Also, Northwest reported revenue of approximately $449 million, up 28.4% compared to five years ago. Trends are strong, as the aging population is driving a booming healthcare sector.
As a Canadian royalty stock, Northwest is a gem due to its very defensive business, history of growth, and distribution profile. Currently, Northwest is yielding over 10%. The royalty does have a heavy debt burden, with some speculating that the dividend will be cut. But if you’re a long-term investor, I think this is a good bet.
Northwest has been around in its current form since 2010 – and so has its dividend. Its annual dividend has, in fact, held steady at $0.80 per share. While there has been no dividend growth during this time period, the yield has been consistently high. Very importantly, despite some really challenging times, Northwest has kept it steady.
