The best dividend stocks are backed by mature businesses that produce strong and steady cash flows. This is the business profile that sets dividend investors up for success. Royalty trusts generally fit this description. The whole goal of royalty stocks is to generate passive income for their shareholders.
In this article, I’ll review two of the smartest dividend stocks to buy now.
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Freehold Royalties
Freehold Royalties Ltd. (TSX:FRU) manages one of the largest non-government portfolios of oil and natural gas royalties in Canada, as well as an increasing portfolio of U.S. royalties. Freehold’s royalties are diversified across geography, resource, and operator. This gives Freehold low-risk exposure to the oil and gas industry.
At this time, Freehold Royalties is yielding a healthy 7.2%. This yield is backed by the REIT’s well-diversified portfolio of assets, its strong cash flows, and its strong balance sheet. In fact, Freehold’s dividend payout ratio is a healthy 75%, and its funds flow from operations was $59 million in its latest quarter.
The price of oil is approximately $56.50 at the time of writing. It has been weakening, but it remains above the critical $50 level that Freehold needs in order to support its dividend. The price of natural gas is rallying – it’s now over $4.00 in the U.S., and approximately $1.90 in Canada. This has been driven by increasing liquified natural gas (LNG) demand, a rise in demand from utilities, and the upcoming boost that is expected from data centres.
Given the strong outlook for natural gas, Freehold has been expanding its exposure to natural gas production.
Pizza Pizza Royalty
Another royalty stock that is looking good today is Pizza Pizza Royalty Corp. (TSX:PZA). The Pizza Pizza restaurants are franchises. This means that the franchisee operates as an independent business. In turn, Pizza Pizza Royalty simply collects royalty income without incurring operating expenses.
Pizza Pizza dominates the pizza quick service restaurant segment in Ontario. It also has locations across Canada, from the West to the East. It has been a staple in its segment for many years now, with a leading position in a mature business.
The stock is currently yielding a generous 6%. It’s backed by a highly predictable cash flow profile, a very healthy balance sheet, and one goal – to pay dividends to its shareholders. In the five years ended December 2024, Pizza Pizza’s operating cash flow was stable and reliable, coming in at $25 million in 2020 and $31 million in 2025.
Finally, I think it would be useful to remind ourselves that there’s plenty of economic risks out there. These include slowing consumer spending, high debt levels, and general uncertainty. Within this framework, Pizza Pizza offers an inexpensive mealtime option. The company stands to benefit from this as consumers become more cautious regarding their spending.
The bottom line
Both Freehold Royalties and Pizza Pizza are two of the best relatively inexpensive dividend stocks to buy. They offer attractive yields, reliable business, and the REIT structure that prioritizes paying shareholders regular and reliable dividends.
