The oil and natural gas industry is a major source of government revenues and a vital part of Canada’s economy. Based on data from the Canadian Association of Petroleum Producers, the sector accounted for 3% of the country’s gross domestic product (GDP) in 2024. Moreover, oil, natural gas, and refined products account for approximately 20% of Canada’s balance of trade.
Energy stocks are also popular among investors due to their generous dividends and potential to generate additional returns from rising oil and gas prices. A buying opportunity today, if not a total package for income seekers, is Freehold Royalties (TSX:FRU). Besides the high 8.7% dividend yield, the payout frequency is monthly.
Lower-risk, zero capital expense
The $2-billion royalty oil and gas company owns about 6.1 million acres of land in Canada. In the U.S., its land base is approximately 1.2 million gross drilling acres and continues to expand. As a royalty-interest owner, it benefits from industry drilling activities on the lands subject to the royalty.
Freehold receives royalty income from more than 380 industry operators. It manages the assets but spends zero on well operations, maintenance, production, and land restoration to its original state. Operators pay all related costs, while Freehold focuses on business development and accretive acquisitions.
Income growth, durable returns
Management believes that Freehold is uniquely positioned as a leader in North American energy royalties. Around 25% of key royalty payors have a market capitalization of $10 billion. Top operators or drillers include Exxon Mobil, ConocoPhillips, Canadian Natural Resources, and Tourmaline Oil.
Freehold is committed to delivering income growth and durable returns through strategic expansion and targeted acquisitions. The strategy is to concentrate on high-margin and long-duration royalties. Additionally, collaborating with investment-grade operators that have long-term perspectives is advantageous.
Regarding inventory life, the Canadian side is 40 years and the U.S. portion is 30 years. Future optionality includes the expansion of geologic zones, improved drilling, and the discovery of other minerals or metals.
Financial highlights
In Q1 2025, Freehold reported a 23% year-over-year increase in royalty and other revenue to $91.1 million. The 14 and 11 new leases signed in Canada and the U.S. contributed $3.9 million in revenue. Net income and cash flow from operations rose 10% and 20% to $37.3 million and $62.9 million compared to Q1 2024.
Its President and CEO, David M. Spyker, said, “Freehold’s Q1-2025 production of 16,248 barrels of oil equivalent per day (boe/d) is at the highest levels in our corporate history, in step with the high-quality acquisition work completed in late 2024.
Spyker added, “The deliberate and strategic build out of our North American royalty portfolio has resulted in a balanced revenue base with Canada contributing 46% of revenue in Q1-2025 and the U.S. contributing 54%. The industry is in excellent shape to manage commodity price volatility due to the capital discipline and prudent balance sheet management approach over the past number of years.”
Monthly passive income
Freehold has been paying monthly dividends (no fail) since April 1998. The current share price is $12.27, while the regular monthly dividend remains fixed at $0.09 per share for now. A $13,730 investment today transforms into $100 in monthly passive income.
