About 30 TSX dividend stocks and 40 Canadian real estate investment trusts (REITs) pay monthly dividends. These dividend payers are excellent options for investors looking to augment their regular incomes with recurring monthly passive income to cover living expenses.
Freehold Royalties Ltd. (TSX:FRU) is the king of the group for its off-the-charts 8.26% dividend yield. Since the energy stock trades at a discount (-13.9% year to date), the current share price of $13.23 is a good entry point. A $6,482.70 (490 shares) investment will produce $44.62 monthly. Hold FRU in a Tax-Free Savings Account (TFSA) and your monthly earnings are tax-free.
Not a typical oil company
Freehold Royalties is not your typical oil company because it doesn’t produce oil & gas, but industry operators drill on their land holdings. The $2-bilion market cap royalty company manages royalty interests in crude oil, natural gas, natural gas liquids, and potash properties in Western Canada and the United States.
The business model is simple, boasts low volatility, and allows growth, upside, and scalability. Freehold spends at most $30 million to run the business but has no development cost or capital expense. Management allots any excess funds for dividend payouts, debt repayment, and portfolio investment.
Freehold’s low-volatility profile stems from zero exposure to operating costs, which also serves as an inflation hedge. Another royalty advantage is that royalties are a long duration, high-margin asset class. The energy royalty company has never missed a monthly dividend payment since 1999 and raised dividends during an increasing pricing environment.
Solid financial performance
In 2022, royalty and other revenue and net income rose 88% and 190% to $393 million and $209.2 million, respectively, versus 2021. The average production of 14,101 barrels of oil equivalent per day (boe/d) for the year was also a new record for Freehold. Management credits the 19% year-over-year volume growth to strong third-party drilling activities and portfolio investments.
Notably, dividend payments reached $141.6 million, a 128.5% increase from a year ago. Freehold’s President and CEO, David M. Spyker, describes 2022 as a year of records. He adds the company has a new look following expansion and optimization efforts. Also, Freehold’s scale and asset base ensure sustainable, long-term value creation for shareholders.
As of year-end 2022, Freehold has royalty interests in over 18,000 producing wells and 350 units in five Canadian provinces and eight states across the border in America. It receives royalty income from around 380 high-quality industry operators.
Regarding contributions, 65% and 35% of total production come from royalty lands in Canada and the U.S., respectively. The former accounts for 60% of total revenue, while the latter delivers 40% to the top line.
Assuming the West Texas Intermediate (WTI) crude oil price stabilizes at US$80 per barrel in 2023, Freehold expects average production between 14,500 and 15,500 boe/d. The funds from operations should hover from $250 to $280 million.
Perpetual objective
Freehold plans to pursue acquisitions, especially in the U.S., and drive oil and gas development on its royalty lands. Management’s objective remains unchanged: deliver growth and lower-risk attractive returns to shareholders over the long term. Going forward, Freehold will position its dividend at approximately 60% of forward-looking funds from operations.
