This 7.8% Dividend Stock Pays Out Every Month

Not all monthly dividend stocks are created equal. And this top stock is certainly a strong choice for passive income.

| More on:
monthly desk calendar

Source: Getty Images

Investing in a dividend stock for monthly income can be a great opportunity. However, only if that monthly income is stable. This is why Freehold Royalties (TSX:FRU) could be a fantastic move for those seeking reliable passive income.

As a monthly dividend payer with an attractive yield, it offers investors a steady cash flow, thus making it an ideal choice for anyone looking to supplement their income regularly. With a current dividend yield of approximately 7.87%, Freehold stands out in the Canadian energy sector, especially for income-focused investors. But it’s not just the high yield. Freehold’s unique structure and impressive financials make it an investment worth exploring.

About Freehold

Freehold is primarily a royalty-focused company, which sets it apart from traditional oil and gas firms. Unlike producers, it doesn’t bear the full costs or risks associated with drilling. Instead, it collects royalties from producers operating on its lands, allowing it to generate income regardless of production costs. This royalty model ensures more stable revenues and margins, giving Freehold an edge in a volatile industry.

This strength has been seen in its financials. Freehold’s latest earnings show a strong performance. In its most recent quarter, the dividend stock reported an impressive 46.41% profit margin and an operating margin of 61.73%. Its quarterly earnings growth year over year hit 62%, a clear sign of its efficient operations and strong royalty income. Freehold’s return on equity (ROE) stands at a healthy 16.17%, which underscores its ability to generate profit from shareholders’ investments.

Moreover, Freehold’s debt management is commendable. As of the latest quarter, its debt-to-equity ratio was 24.83%, thus indicating that the dividend stock maintains a conservative approach to leverage, especially in an industry known for its cyclical risks. This strong balance sheet gives investors peace of mind that Freehold is well-positioned to weather economic downturns without compromising its dividend.

Value and dividends

Another appealing feature is Freehold’s payout ratio of 108%, which might seem high but is manageable given the stable income from royalties. This ratio means Freehold is committed to returning most of its earnings to shareholders, and its cash flow supports this generous dividend. For context, Freehold has a five-year average dividend yield of 7.19%, thus reflecting its long-standing commitment to rewarding shareholders.

Investors should also note the stock’s valuation. With a current price-to-earnings (P/E) ratio of 13.73, Freehold is relatively attractively priced. This low P/E, combined with steady revenue growth of 14.6% year over year, positions it as an appealing option, especially for those who want to add a reliable income producer to their portfolio without overpaying.

In terms of market performance, Freehold has shown resilience. Although its stock has had fluctuations in line with energy prices, its royalty model has kept its earnings steadier, especially compared to other oil and gas companies. Furthermore, its beta of 1.93 suggests it’s somewhat volatile but not overly so, given the sector.

Bottom line

Freehold Royalties is a strong choice for passive income investors. Its high dividend yield, royalty-based structure, solid financial health, and strong performance make it an attractive option for a steady monthly income. For those who appreciate both the energy sector’s growth potential and the safety of royalty income, Freehold checks all the boxes.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Freehold Royalties. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A worker gives a business presentation.
Dividend Stocks

Is TMX Group Stock a Buy, Sell, or Hold for 2025?

TMX Group (TSX:X) stock has been a consistent wealth-builder, generating 4,630% in total returns since 2002. Should you buy, sell,…

Read more »

Man data analyze
Dividend Stocks

2 Deeply Undervalued Dividend Stocks to Buy in November

Here are two stocks that I view as deeply undervalued this November.

Read more »

Dividend Stocks

The 2 Best Canadian Blue-Chip Stocks to Buy Now

Blue-chip stocks can be some of the best stocks to have in any portfolio. But when they're trending upwards, investors…

Read more »

Canadian dollars in a magnifying glass
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These top dividends stocks have consistently paid and increased their dividends. Further, this trend will continue.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »