Most new investors think about making money in the stock market by buying shares at a low price and selling them later for a profit. And while capital gains are certainly an important part of building wealth, they’re not the only way to benefit from owning stocks.
Some companies also share a portion of their earnings with investors through regular dividend payments. What I find particularly appealing is that certain Canadian stocks pay those dividends every month, creating a stream of cash that could be reinvested or used for everyday expenses.
In this article, I’ll highlight a top Canadian monthly dividend stock that currently offers an attractive yield and could help investors build a rewarding stream of passive income.
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A top Canadian monthly dividend stock to buy
If you’re looking to earn a reliable monthly income from your investments, Freehold Royalties (TSX: FRU) could be a great choice to consider right now. This Calgary-based energy company owns oil and natural gas royalty interests across Canada and the United States, earning revenue from production activities on its lands.
Freehold stock has delivered an impressive 26% return over the last year and currently trades at $17.68 per share with a market cap of roughly $3 billion. Even after this rally, FRU stock offers an attractive 6.1% annualized dividend yield, with payouts distributed every month.
Besides its generous dividends, Freehold’s improving financial performance and rising drilling activity across its royalty lands are key reasons to remain optimistic about its long-term outlook. Let’s take a closer look.
Strong underlying financials
Notably, the company’s royalty and other revenue jumped by about 28% year-over-year (YoY) in the second quarter to cross $100 million. This growth was mainly driven by stronger oil prices, which helped Freehold achieve higher realized prices despite a nearly 6% YoY decline in its average production to 15,622 barrels of oil equivalent per day.
More importantly, the Canadian energy firm’s funds from operations surged by about 38% YoY. Similarly, its quarterly net profit climbed sharply to $57 million from just $6.2 million a year ago.
What makes these results even more encouraging for dividend investors is Freehold’s improving ability to cover its monthly payouts. During the latest quarter, the company returned $44.3 million to shareholders through dividends, representing a payout ratio of 57%. That’s a notable improvement from its 78% payout ratio a year ago.
Focus on debt reduction and expansion
In the June quarter, Freehold reduced its net debt by about $24 million sequentially to $251.1 million, further strengthening its balance sheet. These developments suggest that the company has greater financial flexibility to maintain its monthly distributions while pursuing future growth opportunities.
In addition, the company continues to expand its royalty portfolio in some of North America’s promising oil-producing regions. In the latest quarter, it invested about $9 million in acquisitions and related expenditures, primarily targeting oil-focused royalty assets in the Permian Basin.
Meanwhile, Freehold’s drilling activity on its lands continues to grow. Last quarter, operators drilled 300 gross wells across its royalty portfolio, reflecting a 35% sequential increase. Of these, 226 wells were drilled in the United States, with most of that activity concentrated in the Permian Basin.
As newly drilled wells gradually begin production, Freehold expects the benefits of stronger drilling activity to become more visible in late 2026 and early 2027. This could help support its production and cash flow growth in the coming quarters.
Foolish takeaway
Clearly, Freehold’s strengthening cash flows, declining debt, and ongoing royalty portfolio expansion make it an attractive Canadian dividend stock to consider right now. With its 6.1% annualized yield and monthly payouts, FRU stock could be a rewarding long-term investment for anyone looking to build a steady stream of passive income.
