Premium content from Motley Fool Dividend Investor
Dear Fellow Fools,
We’re in the dog days of summer, and recently the market seems to be in a funk of its own. This isn’t all bad news, because it means we have more attractively priced companies to choose from. Here are three dividend stocks my colleagues and I at Motley Fool Dividend Investor think are tremendous deals today.
Dividend Investor “Best Buy Now” Pick #1:
Freehold Royalties (TSX: FRU)
Shares of our favourite oil producers have been moving higher with oil prices of late, but Freehold Royalties (TSX: FRU) hasn’t joined in on the action. In short, there are some concerns about production growth within Freehold’s U.S. segment and without production growth — or higher prices — Freehold won’t collect additional royalties.
Things can always change, but oil prices seem largely range-bound at the moment. So, the focus has been on production growth, and while the current drilling activity out there in Freehold’s areas may only support flat production to slight growth, we think focusing too much on this is too short-term of a view.
We much prefer to look at the overall growth potential within Freehold’s areas and management’s track record for growth with the caveat that they can’t fully control pricing or the timing of production. So, what matters more is whether Freehold has assets that should produce healthy cash flows over its lifetime of production.
We think management’s track record here is strong, and at current oil prices and production levels, the dividend is very well supported. So, whether those cash flows grow now or in a year or two isn’t of much consequence when we can pick up a 7.5% dividend yield with the opportunity to capture a capital gain over a few years, too — especially at a time when Freehold is debt-free, which helps protect the dividend and gives the business some flexibility if energy prices do happen to weaken.
