Getting cash every month just by investing one time can be a blessing. The monthly payouts can supplement your income and pensions. So what are the many sources of earning monthly passive income? The most common form of passive income is leasing land, houses, or equipment. Many companies earn passive income from their operating companies and some from royalties for their discovery or formula. This 8.4% dividend stock earns revenue from royalties.
A dividend stock that pays cash every month
Freehold Royalties (TSX:FRU) acquires and manages land from which companies extract crude oil, natural gas, natural gas liquids, and potash. Freehold Royalties holds approximately 6.2 million gross acres in Canada and approximately 1.1 million gross drilling acres in the United States. More than 99% of its lands earn royalties.
Freehold runs a low-risk business model. It looks for properties where there is oil and natural gas. Then oil and gas companies like ExxonMobil and ConocoPhillips drill oil wells, maintain production, and ultimately abandon wells and restore the land to its original state at their own cost. While these companies incur all the capital expenditure and operations, they pay royalties to Freehold for using the land. The royalty depends on how much oil was produced and the price of oil.
Freehold has royalty interests in around 21,000 producing wells and almost 500 units across five provinces and eight states. More than 360 industry operators across North America pay royalties to Freehold, with ExxonMobil and ConocoPhillips being its largest clients. The more oil drilling happens, the higher are Freehold’s royalty payments, of which it pays 60% to shareholders.
Why buy this 8.4% yielding stock?
Freehold Royalties has been paying monthly dividends since 1999. Despite its low-risk business model, the company’s dividends were affected by the volatility in the oil and gas sector. It is also affected by economic uncertainty as a weak economy reduces oil demand. Moreover, the shift towards green energy reduced drilling activity.
The dividend volatility is visible in the table below. Freehold slashed dividends in seven of the last 26 years and did not grow its dividend for four years after the 2009 Global Financial Crisis.
| Year | Dividend per Share | YoY Change | Year | Dividend per Share | YoY Change |
| 2011 | $1.68 | 0% | 2024 | $1.08 | 0% |
| 2010 | $1.68 | 20% | 2023 | $1.08 | 11.3% |
| 2009 | $1.40 | -51.9% | 2022 | $0.97 | 98.0% |
| 2008 | $2.91 | 51.6% | 2021 | $0.49 | 64.7% |
| 2007 | $1.92 | –5.4% | 2020 | $0.30 | –52.8% |
| 2006 | $2.03 | 10.3% | 2019 | $0.63 | 0.8% |
| 2005 | $1.84 | 6.4% | 2018 | $0.63 | 7.8% |
| 2004 | $1.73 | 1.8% | 2017 | $0.58 | 7.4% |
| 2003 | $1.70 | 29.8% | 2016 | $0.54 | –46.0% |
| 2002 | $1.31 | –16.0% | 2015 | $1.00 | -40.5% |
| 2001 | $1.56 | 18.2% | 2014 | $1.68 | 0% |
| 2000 | $1.32 | 69.2% | 2013 | $1.68 | 0% |
| 99 | $0.78 | -13.3% | 2012 | $1.68 | 0% |
However, North America’s oil and natural gas sector has been in an upturn since the Russia-Ukraine war broke out. Freehold increased its dividends by 65% and 98% in 2021 and 2022, respectively, when the oil price was above US$80/barrel. While the dividend growth has slowed as oil prices fell to around US$70/barrel, a new growth opportunity is opening up for Freehold.
U.S. President Donald Trump is focused on growing oil drilling activity in America as it looks to export American oil to other countries and reduce the trade deficit. More oil production could boost royalty payments for Freehold and a 60% share will go to shareholders.
As the royalty is received in US dollars and dividends are paid in Canadian dollars, you can benefit from a weaker Canadian dollar.
