Given a choice between dividend- and non-dividend-paying stocks, which would you choose? Most investors go with the first option. Research by Shefrin and Statman in 1984 suggests that investors choose dividend stocks to avoid active decision-making. To earn from non-dividend-paying shares, one will have to sell them, and if the stock price subsequently surges, the regret is stronger as they blame their actions for the outcome. “If only we did not act.”
Thus, an easy solution is to have dividend stocks in your portfolio that make decisions for you and give regular payouts in every market condition.
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A 6.1% dividend stock that pays cash every month
Many dividend stocks give quarterly payouts, and those with monthly payouts are generally REITs. But Freehold Royalties (TSX: FRU) pays every month from the royalty money it receives from oil companies, like ExxonMobil and ConocoPhillips. The monthly dividends paid are $0.09 per share on a share price of $17.64. When the 12-month dividend is added, the annual payout is 6.1% of the share price.
Is the 6.1% dividend safe?
As long as oil prices are above US$65 per barrel, dividends are safe.
Freehold Royalties carries no capital or operating costs. Its biggest expenses are interest, dividends, and employee costs. The business model doesn’t require any operations, as Freehold keeps acquiring land and leasing it to oil companies. The oil companies bear the cost of drilling and closing oil wells. They pay Freehold a percentage of their production value as royalty.
This model makes Freehold vulnerable to oil price volatility. When the WTI oil price falls below US$60, its dividend payout ratio crosses 85%, as it did in the fourth quarter of 2025, pulling the stock price down to $14.60. A one-off dip is bearable, but a prolonged weakness in oil prices could force the company to slash dividends.
Looking at its 30-year dividend-paying history, Freehold Royalties has slashed dividends in every market crash and oil price downturn: the 1999 dot-com bubble burst, the 2009 Global Financial Crisis, the 2016 oil crisis, and the 2020 pandemic. It shows the cyclicality of the oil industry. Every five to seven years, Freehold revises its dividends. It has already been six years since the previous dividend cut, hinting that the upcycle could end at any time.
But will it?
Why Freehold Royalties is a stock to buy and hold for the next three years
Unlike the last 30 years, the current oil price upside is likely to last more than six years. This time, global wars in oil-rich nations are keeping oil prices elevated. While there have been civil wars and US sanctions on Venezuela and Iran before, this time the matter has escalated beyond sanctions.
Europe has had three energy shocks in four years. No one knows if there are more energy shocks planned. The Strait of Hormuz blockade is sure to keep prices above $70/barrel. The matters are escalating as the war has destroyed refinery capacity in Russia and the Middle East. It is not just transportation that is the problem, but the shortage in refining of crude into transport fuels will keep prices inflated.
The central banks are touting an interest rate hike to curb inflation pressure from high oil prices. This could ease oil demand by encouraging savings over spending.
If that happens, Freehold might use the surplus cash to reduce debt to keep paying dividends. So far, the company is confident it can sustain its current dividends at US$50/barrel WTI. However, a US$65/barrel oil price is a safety cushion, as it gives Freehold $50 million in surplus cash to maintain financial flexibility.
Investor takeaway
If you already own the stock, keep holding it till 2027, as it is rare to find monthly payouts on high-yielding stocks. Now may not be a good time to buy the stock, as escalation in the Iran war has pushed oil prices above US$90/barrel and Freehold stock closer to its 52-week high. You could consider buying it at $16 or below.
