Stock market: This royalty company passes on earnings growth to investors

This fossil fuel company, which has recently seen its profits increase with the price of oil and natural gas, does not hesitate to pass on its profits to investors. Photo: Pandemic/GettyImages

Are you looking for a company that quickly passes its profits on to investors? Meet Freehold Royalties (TSX: FRU), a fossil fuel company that has seen its profits soar with rising oil and natural gas prices.

Most companies only increase their dividend once a year (if at all). Freehold has increased its yield four times over the past 12 months.

Here’s what you need to know:

Freehold Royalties Ltd. (TSX: FRU)

Type: Ordinary actions

Current price: $11.83

Entry level: Current price

Annual payment: $0.60

Yield: 5.1%

Risk: Higher risk

Recommended by: Gordon Pope

Website: www.freeholdroyalties.com

Deals: Calgary-based Freehold is a dividend-paying oil and gas royalty company with assets primarily located in western Canada, although it is expanding into the United States. Its primary purpose is to actively acquire and manage royalties, while providing a low-risk income vehicle. for shareholders. Freehold has one of the largest independent royalty land portfolios in Canada, with land holdings totaling over 6.7 million gross acres.

Security: I recommend buying the common shares, which trade in Toronto under the symbol FRU.

why i like it: Freehold was quick to share its rising earnings with stakeholders. He has increased his monthly payment four times over the past year and is now earning over 5%.

Financial Highlights: Second-quarter results showed a year-over-year revenue increase of 204% to $44.5 million. Net income jumped to $12.5 million ($0.10 per share) after a loss of $5.4 million ($-0.05 per share) in the same quarter of 2020.

Total production increased by 20% to 11,137 barrels of oil equivalent per day.

The company is actively expanding its base, with four recent purchases. Three involve US-based assets, with the largest transaction valued at $227 million. Management said the deal will significantly improve Freehold’s North American portfolio and improve both the short- and long-term sustainability of the company’s dividend.

Risks: As recent history has shown, this can be a volatile stock. Dividends and stock prices are highly dependent on oil and natural gas prices. The company was quick to increase its dividends as energy prices improved. This will cause them to fall again just as quickly if we see a price drop.

Distributor policy: Dividends are paid monthly. The current rate is $0.05 per share.

Tax implications: Dividends are eligible for the dividend tax credit if held in a non-registered account.

Who it’s for: This stock is suitable for investors who are willing to take above-average risk in exchange for a 5.1% yield and the potential for future dividend increases if natural gas and oil prices remain high.

How to buy: The shares trade on the TSX, with an average daily volume of nearly 650,000. They are also listed on the US over-the-counter market under the symbol FRHLF.

Abstract: The company has recovered and the new focus on acquiring US-based royalties looks promising. Obviously, this stock is not suitable if you want to avoid fossil fuel companies.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe

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