The ongoing turbulence in the equity markets has dragged oil prices lower as investors worry about an upcoming recession. However, the drawdown in share prices has elevated the dividend yields of several TSX energy stocks in April 2025.
One such Canadian dividend stock with a monthly payout is Freehold Royalties (TSX:FRU), which offers a yield of almost 10%. Freehold Royalties manages one of North America’s largest non-government oil and gas royalty portfolios, spanning 6.2 million acres in Canada and 1.1 million drilling acres in the U.S.
With interests in over 18,000 producing wells and revenue from +380 operators, Freehold benefits from industry drilling without paying capital, operating, or restoration costs. This diverse portfolio reduces risk while allowing Freehold to focus on strategic acquisitions and shareholder value creation.
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Is the TSX dividend stock a good buy right now?
Freehold Royalties delivered strong results in 2024, marking significant progress in its strategic transformation toward a more balanced, liquids-weighted North American royalty portfolio. During its fourth-quarter (Q4) earnings call, management highlighted how strategic acquisitions have reshaped Freehold’s asset mix and positioned it for sustainable growth.
In Q4 of 2024, Freehold reported funds from operations of $61 million or $0.40 per share, with full-year funds from operations reaching $231 million, or $1.53 per share. Production averaged 15,306 BOE/day (barrels of oil equivalent) in Q4 with a 65% liquids weighting.
Chief Executive Officer David Spiker emphasized Freehold’s shift toward liquid-weighted plays. In 2025, production is expected to reach 66% liquids, up from 64% in 2024. This strategic focus has meaningful financial implications—Spiker noted that 100 barrels per day of oil generates approximately $3.4 million in annual revenue compared to just $50,000 for 100 barrels per day of gas at 2024 prices.
A key highlight was Freehold’s expanded position in the Permian Midland Basin, where its footprint dramatically increased. Freehold is now positioned to capture an interest in one of every three wells drilled in the Midland Basin, compared to one in twelve the previous year.
ExxonMobil has emerged as Freehold’s largest payer in the Midland Basin and second-largest overall, with half of Freehold’s Midland production now coming from ExxonMobil lands versus only 20% in 2023.
Freehold’s portfolio is now evenly balanced between Canadian and U.S. assets, with 50% of revenue expected to come from each region in 2025. This balance protects Canadian oil exports to the U.S. from potential tariff threats.
In Canada, Freehold is benefiting from increased heavy-oil activity. In 2024, 30% of wells drilled on its Canadian lands targeted heavy oil, up from 19% in 2023. Management highlighted promising drilling results in the West Nipisi Clearwater area and expressed optimism about light oil development in southeast Saskatchewan, where it holds over 500,000 acres.
Is FRU stock undervalued?
Looking ahead, Freehold forecasts 2025 production of 15,800 to 17,000 BOE/day, representing 10% year-over-year growth at the midpoint. The increasing liquids weighting is expected to drive an additional 3% growth in funds from operations per share.
Management emphasized that Freehold offers investors exposure to “a multi-decade inventory of drilling locations” across North America. It also offers a $1.08 per share annual dividend that’s sustainable even if oil prices fall to the low US$50s.
With a payout ratio of less than 70%, FRU’s dividends should be sustainable at current oil prices. Priced at 11 times forward earnings, the TSX stock is relatively cheap and trades at a 48% discount to consensus price targets. After accounting for dividend reinvestments, cumulative returns could be closer to 57% over the next 12 months.
