Creating monthly passive income can be a golden opportunity for long-term investors. One of the key reasons it’s ideal is the magic of compounding. When income is received every month, you can reinvest it sooner and benefit from compounding returns. This accelerates growth over time. Each month, the reinvested income buys more shares, and over years, this snowball effect helps you accumulate more wealth. Think of it as planting seeds regularly. Each reinvested amount contributes to a larger garden of returns that flourishes as time goes by. And there’s one dividend stock that could be an ideal option to capture this growth.
Freehold stock
One strong option to consider for monthly passive income is Freehold Royalties (TSX:FRU), a unique royalty company in the energy sector. Unlike traditional energy companies that incur high capital expenses to maintain production, Freehold benefits from royalty agreements. So it’s not burdened with those same costs. This setup allows it to deliver consistent cash flow to shareholders without the high debt levels typical in the industry.
Freehold’s recent third-quarter results show its strength in delivering value despite fluctuations in commodity prices. For Q3–2024, Freehold generated $74 million in revenue and $56 million in funds from operations, a substantial amount considering market volatility. Monthly dividends amounted to $0.27 per share, reflecting the dividend stock’s commitment to providing income stability to its shareholders. This consistency makes it a solid choice for investors looking to benefit from monthly passive income.
Freehold’s performance further shows its appeal. The dividend stock has maintained an impressive profit margin above 40% and an operating margin of 56%. Freehold’s U.S. production levels, for instance, have remained near record highs, reflecting the value of its diverse asset base. As the dividend stock maintains low debt levels and has just amended its credit facility to increase liquidity, it’s positioned well for future growth and stability.
Looking ahead
The future outlook for Freehold also appears promising. With its recent amendment to its credit facilities, now up to $400 million, Freehold has improved its financial flexibility. This move could open doors to strategic investments and potential acquisitions. A well-funded balance sheet also means Freehold can seize opportunities without over-leveraging.
Another reason Freehold stands out is its commitment to shareholder returns. Over the years, it has consistently rewarded shareholders with dividends that align with its cash flow. The current forward dividend yield sits at an attractive 7.84%.
The structure of Freehold’s royalty-based business model means it remains relatively insulated from the capital-intensive risks that weigh on other energy stocks. Therefore, investors can expect a smoother ride when it comes to dividends. As an energy royalty company with assets spanning North America, Freehold benefits from industry growth without facing the same level of exposure to the operational risks that impact traditional energy companies.
Bottom line
Compounding works best with stocks like Freehold, where dividends are not only consistent but also robust. Monthly income means you can reinvest faster, which is particularly useful if you have a tax-advantaged account like a Tax-Free Savings Account (TFSA). Over time, these small monthly contributions grow substantially, contributing to an overall higher portfolio value than if you’d invested in quarterly dividend stocks.
For Canadian investors aiming to build wealth through consistent income, Freehold Royalties represents an appealing choice. Its monthly payouts allow for frequent reinvestment and compound growth, which are crucial in the long game of investing. When combined with Freehold’s high dividend yield, solid asset base, and financial strength, it’s easy to see why this company could play a key role in a long-term income portfolio.
