Bank of Canada hiked interest rates in expectation of inflation rising to 3.5% by the end of 2026 as companies push higher energy costs to consumers. Just as a software update is mandatory to keep your system secure from malware, a portfolio update is necessary to keep your portfolio protected from inflation and downside risks.
Just as a software update does not affect your work files and data, a portfolio update keeps your long-term investments unaffected. What changes is a new investment, a new stock to fill the gap that inflation poses. This portfolio update will require a $4,000 investment in a dividend stock yielding 6.3%.
Source: Getty Images
Why buy this 6.3% yielder?
The dividend stock is Freehold Royalties (TSX: FRU). Unlike other 6% yielding dividend stocks that have lower financial flexibility due to significant debt on the balance sheet, Freehold Royalties is at a sweet spot. It has relatively no operating risk and lower financial risk. Moreover, it is in an uptrend when energy prices rise.
Freehold buys oil wells and leases them to oil companies like ConocoPhillips to extract oil. These companies pay a lease and a royalty, which is calculated as a percentage of oil produced multiplied by the realized price. The realized price depends on the WTI price, which is affected by global demand and supply. In the third quarter, oil prices surged past $100 as escalating tensions in the Middle East reached Saudi Arabia after the Houthi attack.
Freehold stock has dipped 3.6% on Monday, November 2, ahead of U.S. mid-term elections. However, these elections are unlikely to ease tensions with Iran. Unless the US-Iran war shows signs of slowing or ending, oil prices will remain elevated. The high energy prices an average individual pays will go into the wallets of oil and gas companies.
In all this, Freehold has no operational risk of extracting or refining oil or abandoning the wells. All the cost is borne by oil companies. Freehold is collecting royalties and using the funds to reduce debt, pay monthly dividends, and acquire new oil fields.
As long as WTI remains above US$60/barrel, Freehold can keep paying the current monthly dividend of $0.09 per share, which converts to $1.08 in a year. The dividend payout ratio hovers between 57% and 87% depending on the price realized. The fourth quarter of 2025 was the weakest for oil stocks. Freehold realized WTI of $59.14, which increased its payout ratio to 87%. Unless the Iran war eases, oil prices may not reach the December 2025 low.
Why invest $4,000 in the 6.3% yield?
Freehold pays dividends on the 16th of every month. The recent dip has created an opportunity to buy 235 shares for $4,000 and start collecting $21.15 a month from December 16 onwards.
| Stock | Purchase Price | Investment Amount | Number of Shares Purchased | Annual Dividend per Share | Annual Dividend |
| FRU | $17.03 | $4,000 | 235 | $1.08 | $253.80 |
The 6% yield can help you fill the purchasing power gap from the 3.5% inflation. However, make sure you invest through a Tax-Free Savings Account (TFSA), or you will have to pay dividend tax on it.
Now is the time to buy, as the company will release its third-quarter earnings on November 10, which could push the stock price up.
