Having a single source of income is no longer a viable solution. The economic scenario is an eye-opener that jobs and business have their ups and downs. Savings may not be able to fight high inflation. Whether you are an employee or a small business owner, it is imperative to build a passive source of income. Thankfully, the Toronto Stock Exchange has some monthly dividend stocks on which you can bank upon to pay cash every 30 days.
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This 8.4% dividend stock pays cash every 30 days
Generating a passive-income source needs a significant initial investment. If you want to earn monthly rent, you have to initially invest in a property. If you want to earn royalties, you have to invest in creating valuable technology or assets that others can use and are willing to pay you for the usage.
Freehold Properties (TSX: FRU) deployed $685 million to establish a U.S. royalty position in 2020 and has generated over $400 million in cumulative revenue to date. Freehold acquires land and gives it to oil and gas producers to extract oil. It earns a royalty on the amount and quality of oil produced. Its U.S. portfolio generated a 43% premium price as it produces higher-quality light oil and offers access to the Gulf Coast market.
Freehold Properties has 18,000 development locations in Canada with 40 years of inventory and 24,000 locations in the United States with 30 years of inventory. ConocoPhillips and ExxonMobil are its biggest royalty payors, along with 360 other industry payors. No single client represents more than 20% of Freehold’s revenue. Its diversified client base and high-yielding assets can ensure 30 years of dividend yields.
However, the dividend amount will depend on the royalty earned by the company. Its long-term target is to pay out 60% of its funds from operations as dividends even when the West Texas Intermediate is US$50/barrel. This target came after the company’s dividends took a hit from the 2014 oil crisis, which pulled down the oil price. However, it has optimized its assets to pay $0.09 dividend per share every 30 days at $50 WTI.
Freehold Properties’s share is trading above $13. As the company is paying an annual dividend of $1.08, its yield is 8.4% of the share price. The monthly yield is 0.68%.
Who should invest in this 8.4% dividend stock?
The above stock has a 28-year dividend-paying history. However, its dividends are subject to the oil and gas industry’s cyclicality. In these 28 years, it has slashed dividends in seven and stalled dividend growth in six. While Freehold may not guarantee a fixed monthly pay, it is a good source of passive income to fight high inflation. Higher oil prices increase inflation and Freehold’s dividend. Freehold’s share price is unlikely to generate much growth, which means your principal won’t appreciate much.
The geopolitical tensions and U.S. tariff uncertainty have affected oil prices in the short term. However, it has increased oil exploration, resulting in higher production. So far, oil price and demand have not affected Freehold’s dividends. You could consider investing in this stock to meet the increase in the cost of living in difficult times. However, it may not be a source of income to depend on for retirement income.
Investor takeaway
The premium yield of 8.4% is for the cyclicality risk. If you want low-risk, stable dividends, opt for oil and gas pipeline companies like Enbridge, as its income is unaffected by oil prices.
