In the event you display the TSX for high-yield shares that pay month-to-month distributions, you’ll normally find yourself in one in all two buckets: actual property funding trusts (REITs) or royalty revenue trusts.
I personally desire the latter. As somebody who already owns property, I don’t want further actual property publicity layered into my portfolio. Extra importantly, I just like the asset-light nature of royalty companies, which frequently generate sturdy margins.
That stated, not all royalties are created equal. I’ve mentioned restaurant royalty trusts earlier than, however I’m much less obsessed with them in 2026 given how cyclical they’re and the way carefully tied they’re to shopper spending. When instances get tight, eating out is likely one of the first issues Canadian households lower.
A royalty mannequin I desire extra is one tied to Canada’s power sector. That’s the place Freehold Royalties Ltd. (TSX: MRS) is available in.
As of February 11, it’s yielding roughly 6.5% and pays distributions month-to-month. In case your aim is dependable passive revenue inside a Tax-Free Financial savings Account (TFSA), that is one title that deserves critical consideration.
What’s Freehold Royalties?
Freehold Royalties is just not your typical oil and gasoline producer. It doesn’t arrange rigs, drill wells, or function pipelines. Neither is it a midstream firm transporting crude and pure gasoline throughout the nation.
As an alternative, Freehold Royalties owns roughly 6.1 million gross acres in Canada and 1.2 million acres in the USA throughout each standard oil areas and shale basins. It has roughly 380 royalty counterparties. They’ve pursuits within the land and receives a commission when others extract assets from it.
It’s a pure-play royalty firm. Meaning it doesn’t carry the heavy capital prices of drilling wells, hiring area workers, sustaining tools, or finally decommissioning wells. These prices fall on the operators. Freehold simply collects its share of manufacturing income.
Due to this construction, its financials look very totally different from a conventional oil firm. You don’t normally see exploration and manufacturing firms posting working margins round 51%. You additionally don’t sometimes see such modest leverage, with roughly $284 million in debt relative to the dimensions of belongings. That’s the benefit of the royalty mannequin. Freehold earns when others do the operational heavy lifting.
Freehold Royalties dividend
Freehold pays its $0.09 per share dividend month-to-month. Primarily based on the newest distribution annualized, the yield is roughly 6.5%.
After all, distributions are influenced by commodity costs, notably oil. Nevertheless, Freehold goals to maintain the dividend sustainable moderately than maximize it on the high of the cycle.
Administration targets a payout ratio of about 60% of free money movement, which supplies a buffer throughout weaker pricing environments. The corporate has acknowledged that its present month-to-month dividend is sustainable right down to roughly US$50 per barrel WTI crude.
That degree of resilience compares favourably to smaller-cap oil and gasoline producers, which frequently carry extra debt and operational danger. Freehold’s revenue stream is additional supported by a multi-decade drilling stock and partnerships with massive, established operators.