2 Top Royalty Stocks With Dividend Yields of Up to 9.1%

Two top royalty stocks paying monthly dividends are among the TSX’s generous dividend payers.

| More on:
A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."

Source: Getty Images

Royalty stocks are alternative options for diversification purposes and portfolio stability. The TSX has about nine good prospects, especially for income-focused investors.

However, if you’re risk-averse, Freehold Royalties Ltd. (TSX:FRU) and Diversified Royalty Corp. (TSX:DIV) have relatively low-risk profiles. In addition to the monthly payout frequency, the dividend yields are 8.1% and 9.1%, respectively. Moreover, despite today’s elevated market volatility, neither stock has experienced wild price swings.

Sustainable business model

Freehold Royalties boasts a high-netback portfolio (99% royalty lands) of oil and gas properties and mineral titles, enabling generous dividend payments. The $2 billion firm manages 6.2 million gross acres in Canada and 1.1 million gross drilling acres in the United States. As of this writing, the share price is $13.18.

According to management, the high-quality assets create a sustainable business model for shareholders. The portfolio in North America is diverse and generates robust cash flows even if commodity prices are at a low break-even level. Freehold’s dividend track record is 28 years and counting.

The operators or drillers on the royalty lands and lessees on the mineral titles are top Canadian and American oil and natural gas producers, including Canadian Natural Resources, Tourmaline Oil, Exxon Mobil, and Marathon Oil (NYSE:MRO).

In Q2 2024 (three months ended June 30, 2024), royalty and other revenue increased 12.8% to $84.5 million versus Q2 2023, while net income rose 38.2% year-over-year to $39.3 million. The oil-weighted portfolio’s production grew 3% to an average of 15,221 barrels of oil equivalent per day (boe/d) from a year ago.

According to David M. Spyker, President and CEO of Freehold Royalties, U.S. royalty lands continue to attract drilling activity. The 274 gross wells drilled were the highest quarterly drilling on U.S. soil. Freehold also signed 15 new leases on mineral title lands during the quarter.

Since Q4 2022, Freehold Royalties has paid $40.7 million in quarterly dividends, usually 68% of funds from operations. The funds from operations in Q2 2024 reached $59.6 million, 11% higher than in Q2 2023. Freehold has no exposure to oil and gas costs or expenses like capital, operating, and abandonment.

For 2024, Freehold expects royalty annual average production to be between 14,700 and 15,700 boe/d. The company will also capitalize and seize on the $530 billion mineral title opportunity in the active Permian basin in Texas.    

Cash cow

Diversified Royalty is a low-priced cash cow on the TSX. At $2.73 per share (+5.28% year-to-date), you can partake in the mouth-watering 9.1% dividend. Assuming you use your $7,000 Tax-Free Savings Account (TFSA) annual limit in 2024 to invest in DIV, the money will generate $53.20 in tax-free monthly income.

The $450 million multi-royalty corporation’s revenue streams come from eight royalty partners led by Mr. Lube, Canada’s leading quick-lube provider. Diversified also owns the trademarks to AIR MILES, Sutton, Mr. Mikes, Nurse Next Door, Oxford Learning Centres, Stratus Building Solutions, and BarBurrito.

After incurring a net loss of $8.9 million in 2020 due to the global pandemic, Diversified bounced back and reported an average annual net income of $23.6 million from 2021 to 2023. In Q1 2024, royalty and net income climbed 22.2% and 12.2% year-over-year to $15 million and $7.5 million, respectively.

Faster money growth

Freehold Royalties and Diversified Royalty are excellent second-liners in a dividend stock portfolio. The money growth potential is enormous because you can reinvest the dividends 12 times a year instead of 4.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources, Freehold Royalties, and Tourmaline Oil. The Motley Fool has a disclosure policy.

More on Dividend Stocks

dividend growth for passive income
Dividend Stocks

3 Dividend Growth Stocks to Buy With Yields of 6% or More

These three top TSX stocks offer both dividend growth and sky-high yields, making them some of the best to buy…

Read more »

A worker gives a business presentation.
Dividend Stocks

Is BCE Stock a Buy?

BCE stock continues to struggle, but with an ultra-high dividend yield, could it be a good long-term option for investors?

Read more »

Person slides down a stair handrail
Dividend Stocks

Why I’m Bullish on Cargojet Stock

Cargojet stock has a long and storied history of growth and slumps, but now might be a great time to…

Read more »

Muscles Drawn On Black board
Dividend Stocks

Canadian Dividend Stars to Add to Your 2025 Portfolio

These stocks pay good dividends that should continue to grow.

Read more »

bulb idea thinking
Dividend Stocks

The Smartest Dividend Stocks to Buy With $10,000 Right Now

In addition to consistent income, buying these two dividend stocks now could set you up for strong long-term growth potential.

Read more »

coins jump into piggy bank
Dividend Stocks

5 Secrets of TFSA Millionaires

If you're looking for the top secrets of TFSA millionaires, you've come to the right place.

Read more »

concept of real estate evaluation
Dividend Stocks

2 No-Brainer Dividend Stocks to Buy Right Now for Less than $200

These two dividend stocks have reliable operations and impressive long-term growth potential, making them two of the best to buy…

Read more »

Technology
Dividend Stocks

Building a Resilient Portfolio With Canadian Dividend Aristocrats in 2025

Are you seeking stability in 2025? Discover how Canadian Dividend Aristocrats can fortify your portfolio with battle-tested stocks that keep…

Read more »