Long-term investment in dividend stocks is a strong option for Canadians. Dividend stocks offer both consistent income and capital appreciation over time. Dividend-paying stocks on the TSX have historically provided average annual returns of 8%. That would mean a $10,000 investment would average returns of $800, thus significantly contributing to retirement savings and portfolio growth. The reliable source of income, combined with potential stock price increases, makes dividend investing one of the smartest approaches for long-term financial security. But where should investors look? Today, we’ll consider one top option.
Freehold Royalties
Freehold Royalties (TSX:FRU) is a standout investment on the TSX, benefiting from strong management and a royalty-based business model. The company collects royalties from oil and gas producers, thereby ensuring a steady revenue stream without the direct risks of exploration and production. Under Chief Executive Officer David Spyker’s leadership, Freehold has expanded its assets and maintained a focus on shareholder returns. Spyker emphasized the company’s strategic direction, stating, “We are committed to growing Freehold’s portfolio while delivering consistent returns to our investors.” This focus has made Freehold resilient in volatile market conditions.
The management team’s strategy of balancing acquisitions and disciplined financial practices has resulted in notable growth for Freehold. Their ability to manage risk while maintaining profitability has been key to their success. In addition, Freehold’s diversified portfolio, with royalties coming from a variety of regions, further strengthens the company. This diversity helps spread risk and enhances the company’s stability. Thus making it a safer investment for shareholders seeking dependable long-term income.
Into earnings
Freehold’s earnings momentum has been impressive over the last few quarters. In the second quarter (Q2) of 2024, the company reported a 14.6% year-over-year revenue increase to $323.04 million, showcasing its ability to thrive despite fluctuating oil and gas prices. Net income grew significantly by 62%, further demonstrating the company’s profitability. These strong financial results were driven by its expanding asset base and improved cash flows — both of which allowed Freehold to maintain a strong dividend payout.
Moreover, Freehold’s cash flow generation has been robust. Operating cash flow for the trailing 12 months stood at $224.46 million, with a levered free cash flow of $71.12 million. This healthy cash flow has allowed the company to maintain its impressive dividend yield of 8.27% at writing. For income investors, this offers a significant return. Especially when compared to other royalty-based or energy-related investments on the TSX.
Foolish takeaway
Currently trading near its 52-week low, Freehold remains a valuable and safe investment. The company’s unique business model, which collects royalties without taking on the capital-intensive risks of production, offers stability in uncertain times. With a forward-looking strategy focused on expanding its portfolio and continuing to deliver shareholder value, Freehold presents an attractive opportunity for investors seeking long-term growth and reliable dividends.
Altogether, Freehold stands out for its strong financial performance, strategic leadership, and resilience in a competitive market. Its consistent earnings growth and robust dividend yield make it a great option for Canadian investors looking to build passive income in any long-term, dividend-focused portfolio.
