Invest $5,000 in This Dividend Stock for $320 in Passive Income

Explore the potential of dividend stocks in the energy sector with high yields post-pandemic. Learn about top investment options.

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Key Points
  • Freehold Royalties offers a high 6.5% dividend yield, thriving on royalties from oil extraction without operational risks, making it an attractive option for passive income despite recent management changes.
  • With oil prices expected to remain above $60/barrel, the company can sustain its dividend payouts and use surplus cash flow for acquisitions and debt repayment, supporting long-term stability and shareholder value.

The energy sector is the most happening sector for dividends and capital gains post-pandemic. Steep dips and sharp surges are the new normal for oil and gas companies. Oil and gas pipeline companies are experiencing a share price rally driven by oil price increases resulting from energy shocks and the Canadian government’s initiative to accelerate energy infrastructure development.

The Iran war pushed oil stocks to a new high, making a 3.25% annual dividend yield the new normal. However, one energy stock continues to offer a higher dividend yield of 6.5%.

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Invest $5,000 in this dividend stock for $324 in passive income

Like other energy stocks, Freehold Royalties (TSX: FRU) stock surged 22% between January and March as oil prices surged. However, the share price started falling after March 11 as it reported weaker 2025 earnings due to lower commodity prices in the fourth quarter. On April 13, the company’s chief financial officer resigned. The press release did not specify the reason for the resignation. This is the second top official to exit after the resignation of the chief operating officer in November 2025.

The top official’s exit is not a positive sign. Interestingly, the company’s share price remains unaffected by these exits.

While Freehold Royalties shows signs of risks, its dividends are too good to ignore in the energy upcycle. The company can sustain its current annual dividends of $1.08 per share even at US$50 West Texas Intermediate (WTI). What makes me bullish on this stock is that it has very low operational risk.

Oil companies like ConocoPhillips pay royalty for using Freehold’s reserves. Oil companies bring the equipment, drill for oil, and close the wells. Freehold gets a percentage of the value of the oil produced. Hence, the exit of the chief operating officer was not significant. The company even removed that role from its organizational structure.

The first quarter of 2026 could see windfall earnings as the oil price touched US$125. WTI has corrected to around US$84, but it is still better than the US$64.81 realized in 2025. The company could probably use the surplus to reduce debt and increase free cash flow. Its dividend payout ratio reached 87% in the fourth quarter of 2025 when oil prices fell. Its long-term payout ratio target is 60%.

The potential risk that comes with this stock

The recent resignation of the chief financial officer (CFO) could be concerning, as the new CFO will have to first gain the trust of shareholders by improving the company’s finances. The role of CFO is important as they make deal negotiations easier, handle royalty calculations, and manage cash flow and debt efficiently.

While the management issues get resolved, Freehold will continue to mint money from the royalty revenue oil companies pay Freehold for using its wells.

This dividend stock could pay $320 in annual passive income

You could consider investing $5,000 to buy 296 shares of Freehold that pay a $1.08 annual dividend per share in 12 monthly installments. It can pay you $320 in annual passive income in 2026 as oil prices are unlikely to fall below US$60/barrel anytime soon.

StockShare PriceDividend per ShareDividend on $5,000Number of Shares
Freehold Royalties$16.90$1.08319.68296

For every US$1/barrel change in WTI, Freehold’s funds from operations change by $3.9 million. The company assumed US$65/barrel WTI for 2026. So far, the WTI has been above US$80.

The company will allocate its surplus cash flow to acquire more land, repay debt, and buy back shares. That is the order of priority after paying dividends. Its stock price will correct as the oil price falls. However, improvement in fundamentals could help Freehold sustain its higher share price.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Freehold Royalties. The Motley Fool has a disclosure policy.

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