Finding stocks that you can confidently hold for the long term is one of the most important parts of successful investing. Buying and selling constantly not only adds stress, but it also often leads to worse results over time.
There’s a reason why Warren Buffett famously said that his favourite holding period is forever, and while that doesn’t mean you don’t reassess your holdings from time to time, it highlights how the best stocks are companies you never want to sell.
Sometimes, you might reduce or trim a position if it grows too large, but that doesn’t mean you have to sell a stock outright.
In fact, as your portfolio grows and you add new investments, positions you stop adding to naturally become smaller over time anyway. That’s another reason selling isn’t always necessary.
And if there’s one stock in my portfolio today that I don’t think I’ll ever sell, it’s Freehold Royalties (TSX: FRU). Here are three reasons why.
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A high-quality stock with a simple, low-risk business model
One of the biggest reasons Freehold is such an excellent stock to own, and why I consistently recommend it to investors, is how simple its business model is.
The company owns royalty interests on energy-producing lands and collects a percentage of production revenue. It doesn’t operate wells, drill new projects, or manage day-to-day operations, like many of its energy stock peers.
That simplicity makes Freehold easy to analyze and significantly reduces risk. There’s no massive capital spending, no cost overruns, and no operational surprises.
Because of that, it’s also one of the cleanest ways to gain exposure to the energy sector. Investors benefit from production activity across its lands without having to worry about execution risk.
That makes Freehold such a reliable dividend stock for investors and is one of the main reasons why I don’t think I’ll ever sell.
Freehold is one of the most reliable high-yield dividend stocks on the TSX
Because of its simple business model, the company consistently generates a ton of free cash flow, largely because it doesn’t have to spend money on capital projects.
Furthermore, even when commodity prices pull back, Freehold is far more insulated than most energy companies because of its royalty model.
In addition, though, because commodity price swings can be significant, Freehold keeps its payout ratio at a very reasonable level, typically aiming for 60% of its funds from operations.
Therefore, the fact that Freehold offers a current yield of roughly 6.8%, but maintains a highly conservative payout ratio, makes it one of the most reliable high-yield dividend stocks in Canada.
Freehold has growth potential that most royalty stocks don’t have
Although Freehold has a similar top-line business model to many other royalty stocks, the main difference is that the majority of royalty stocks, especially outside the energy sector, pay out nearly all their cash flow, leaving little room for growth.
Because Freehold keeps a much more conservative payout ratio, though, it’s consistently building a cash position each month that it generates more funds than its paying out.
And over time, that pile of cash can be a real asset that Freehold uses to acquire additional royalty lands in both Canada and the United States, which expands its footprint and diversifies its revenue base.
Therefore, given its simple and reliable business model, its sustainable 6.8% dividend yield and its long-term prospects for growth, Freehold is one of the best dividend stocks in Canada, and one I don’t ever plan on selling.
