Canada’s energy stocks took a hit due to Trump’s tariff uncertainty on Canadian oil exports. However, the Canadian stock market recovered sharply, rising 15.5% since April 8. The surge came as the tariff uncertainty ended. On April 8, Trump paused retaliatory tariffs for 90 days, but Canada saw a 10% tariff on oil exports. The anxiety was lessened, and the market could act on tariffs. Tariffs pulled down the West Texas Intermediate (WTI) crude price to US$62.49 from around US$70 before tariffs. Amid all this, some energy stocks reported robust earnings. Freehold Royalties (TSX:FRU) was one of them.
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This energy titan is practically giving money away
To give you a little background on Freehold Royalties, it acquires land and allows oil companies to drill and extract crude oil, natural gas, natural gas liquids, and potash. It has no operating cost and earns royalties on the volume of oil produced and the oil price.
Last year, Freehold acquired significant property in the United States, which almost tripled its net debt to $282 million from $100 million in 2023. However, it is reaping the rewards of the acquisition.
The U.S. offers premium pricing as companies drill light oil, and the property has proximity to the Gulf Coast. Freehold’s realized price was $72.64/boe in the U.S. and $49.26/boe in Canada in the first quarter of 2025. Its revenue surged 22.6% year over year to $91.1 million, of which 54% came from the U.S. and the remaining from Canada.
The tariffs reduced oil prices, making investors worried about dividend cuts by energy companies as their profits fall. However, Freehold assured investors that it could continue paying its current monthly dividend of $0.09 till the WTI price is about US$50/barrel (bbl).
Its dividend-payout ratio was 65% in the first quarter when it realized US$71/bbl WTI. It can sustain up to an 80% payout ratio. A higher product mix of U.S. light oil could keep Freehold’s free cash flow high. Moreover, the Trump administration’s support for more oil drilling could keep the volumes high.
Is this stock a buy for its 8.75% dividend yield?
Freehold Royalties stock is not well known for stable dividends, as its payouts depend on oil prices and oil volumes. Before the pandemic, the transition to renewable energy made oil a declining industry. However, the 2020-2030 decade seems to be bullish for oil, especially since sanctions on Russia. The geopolitical tensions have changed the global oil supply chain and brought the United States and Canada as exporters of oil and natural gas.
Now is a good time to buy Freehold Royalties stock for its dividend payout. In the last 10 years, the company slashed its dividend three times when the oil price fell significantly.
| Year | Freehold Royalties dividend per share | YoY Growth |
| 2025 | $1.08 | 0.0% |
| 2024 | $1.08 | 0.0% |
| 2023 | $1.08 | 11.3% |
| 2022 | $0.97 | 98.0% |
| 2021 | $0.49 | 64.7% |
| 2020 | $0.30 | -52.8% |
| 2019 | $0.63 | 0.8% |
| 2018 | $0.63 | 7.8% |
| 2017 | $0.58 | 7.4% |
| 2016 | $0.54 | -46.0% |
| 2015 | $1.00 | -40.5% |
As long as you have reasonable ground to believe that the WTI will trade at US$50/bbl, Freehold Royalties can sustain its dividends. However, this is not a stock you might want to hold for the long term. The next two to three years are an opportune time to be in the U.S. energy market and reap the rewards of oil drilling policies.
Once this reason is gone, consider selling the stock as a dividend cut might follow. You can use the proceeds to buy a more resilient dividend stock like Enbridge.
