6.3% Monthly Cash Flow: This Dividend Stock Could Be a TFSA ATM

A 6.3%-yielding monthly dividend from Freehold Royalties could turn TFSA room into steady, tax-free cash flow.

Key Points
  • Monthly dividends are nice, but the payout is only safe if cash flow covers it.
  • Freehold collects royalties from oil and gas production without paying drilling or operating costs.
  • The yield looks covered today, but oil prices and drilling activity can still force cuts.

An ATM that spits out money without shrinking the account balance sounds suspiciously like a machine the bank forgot to test. A dividend stock can create a similar experience inside a Tax-Free Savings Account (TFSA), sending cash every month while the original shares remain invested. The trick is finding a payout funded by a real business rather than financial wishful thinking.

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.

Source: Getty Images

A monthly consideration

Monthly dividends are convenient, not automatically safer. The payment schedule can match regular bills or buy more shares sooner, but payout coverage determines whether the arrangement can last. A double-digit yield backed by weak cash flow may be less of an income opportunity and more of a smoke alarm.

The TFSA adds the useful component. The Canada Revenue Agency says dividends, capital gains, and withdrawals are generally tax-free inside a TFSA. The 2026 dollar limit is $7,000, unused room carries forward, and withdrawals generally return as contribution room the following calendar year.

Investors should confirm their personal room before contributing because not everyone can add the same amount. Once the money is invested, however, dividends don’t consume additional room. They can remain as cash, fund withdrawals, or be reinvested to turn future monthly payments into slightly larger ones.

Collecting rent from oil fields

Freehold Royalties (TSX: FRU) offers an unusual route to that cash flow. It owns royalty interests across approximately six million gross acres in Canada and 1.2 million gross drilling acres in the United States. Energy producers drill and operate the wells, while Freehold stock receives a share of the production revenue.

That model avoids the drilling, operating, and abandonment costs normally paid by a producer. Freehold can therefore earn more cash as operators develop its land without financing every well itself. Its properties span several North American basins and customers, which is considerably more appealing than crossing one’s fingers for a heroic drilling crew.

A stronger quarter supports the payout

Second-quarter funds from operations (FFO) increased 32% from the previous quarter to $78 million as stronger oil prices and operator activity improved royalty revenue. The dividend consumed 57% of those funds, down from 75% in the first quarter. That left breathing room for debt reduction and additional royalty purchases.

The next growth leg could come from new wells. Operators increased activity across Freehold’s Canadian and U.S. lands, while the company added more oil-focused royalty acreage in the Permian Basin. More wells can expand production and royalty cash flow without Freehold receiving the drilling invoice, a rather pleasant division of labour.

What a $7,000 TFSA contribution could pay

Freehold pays $0.09 per share each month, or $1.08 annually. At its recent share price, its dividend yield came in at a 6.3% yield. An investor with at least $7,000 of available room could create the following position.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
FRU$17.12408$1.08$440.64Monthly$6,984.96

Rounding down to full shares leaves $15.04 in cash and creates monthly payments of approximately $36.72. Reinvesting those deposits through a dividend-reinvestment plan could gradually buy more shares, turning one year’s income into the starting point for the next.

Bottom line

The dividend isn’t guaranteed. Falling oil and natural gas prices, weaker drilling, production declines, or poor capital allocation could reduce Freehold’s cash flow and eventually pressure the payment. Its share price can also swing, making this one of the monthly dividend stocks to own within a diversified portfolio rather than beside an emergency-fund label.

Freehold stock’s latest coverage, low-cost royalty model, and expanding drilling opportunity make the current 6.3% yield look supportable. If management keeps protecting the balance sheet while operators keep developing its acreage, that first $36.72 monthly TFSA deposit could become considerably more useful with time.

Fool contributor Amy Legate-Wolfe 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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