The first thing that most Canadian investors think about when they think about monthly dividends is real estate investment trusts (REITs). But they aren’t the only monthly dividend payers in Canada, and you can find such stocks in multiple other sectors.
But when you are looking for a good dividend stock to invest in, dividend frequency isn’t the most crucial variable. You should also take factors like yield, dividend history, and business model into account. Freehold Royalties (TSX:FRU) is a decent pick, considering all these variables.
Source: Getty Images
The company
Freehold Royalties is a modestly sized company based on market capitalization (of $2 billion). However, its portfolio is quite compelling. At 6.2 million gross acres, the company claims to be the largest non-government entity to hold energy (oil and gas) royalties in the country.
This makes it a powerful and relatively unique way to gain exposure to the energy sector instead of the more common investments.
The portfolio holds assets in both Canada and the U.S. and is oil-heavy. Oil and natural gas liquid-oriented properties make up about 64% of the portfolio and currently 94% of the revenues. However, sizable natural gas holdings are likely to be an asset to the company in the long term, as it’s the “cleaner” fossil fuel.
It’s connected to energy giants on both sides of the border, and many of the top American and Canadian upstream companies extract oil from the assets in which this company has the royalty.
The dividends
The company is offering dividends at a generous yield of around 7.8%. At this rate, it can generate a monthly income of about $130 with a $20,000 investment. The payout ratio is not as healthy as you would want in your dividend stock, but if you compare it to previous years, it looks relatively sustainable.
One thing you need to know about the company’s dividend history is that it slashed its payouts in 2020 along with some other energy stocks. However, it started growing them as the sector recovered, and the current payouts are significantly higher than the slashed level. It pays about $0.09 per share per month.
The dividends are the best part about this company, though it did experience a robust bullish phase with the rest of the energy sector in the post-pandemic market. The stock is currently fluctuating around a relatively healthy median price.
Foolish takeaway
This monthly dividend payer might sustain its payouts, assuming the energy sector doesn’t face another crisis of a magnitude similar to that of the pandemic. The yield is compelling enough as it is, but it may slump further if the oil prices don’t see a solid recovery, so you may consider waiting and locking in an even more compelling yield.
