Freehold Royalties Ltd. (FRU.TO and FRHLF) - Dec 31

[dan_s]

I have decided to add Freehold Royalties Ltd. to our High Yield Income Portfolio.

It is an Aggressive Growth Minerals Company. < Over the last four years it has made some big acquisitions in the U.S. using a combination of debt and equity to fund them. I don't like growth that is funded entirely with debt.

Current Market-Cap is approximately $2.5Cdn billion
It pays monthly dividends of $0.09Cdn ($1.08Cdn/year) < I am a big fan of monthly dividends
Current share price is $15.22Cdn and $11.09US for FRHLF
Current production is approximately 16,000 Boepd (65% liquids) and management expects organic annual growth to be 8% to 10%.
Lots of high-quality "Running Room" in the Permian Basin. Overall they have multiple decades of drilling inventory.

TipRanks calls it a "Moderate Buy": Based on 7 Wall Street analysts offering 12 month price targets for Freehold Royalties in the last 3 months. The average price target is $11.76 with a high forecast of $12.78 and a low forecast of $10.95. The average price target represents a 6.05% change from the last price of $11.09.

On December 8th Raymond James upgraded Freehold Royalties (FRHLF) to Outperform from Market Perform with a price target of C$17.50, up from C$14.50. Energy subsectors have broadly outperformed levels implied by commodity moves, and some outperformance is justified by a better political backdrop, improved egress visibility, and M&A activity, leaving select areas still attractive, the analyst tells investors in a research note.

Over the last three months 4 of the 7 analysts covering the stock have raised their price targets.

What the analysts like:

Accretive M&A > With a high dividend yield and accretive M&A as it executes on its U.S. expansion, the name should attract attention.

Cash Flow And Productivity > A cash flow beat, 34 new leases signed, and a meaningful improvement in well productivity should help partially offset concerns about slowing activity across U.S. basins.

Stable Dividends > FRU is capable of continuing to offer investors a stable and growing dividend as it executes on its U.S. expansion strategy. The current monthly dividend should be sustainable as long as WTI oil stays over $50US/bbl.

Freehold does have significant oil price risk, but I think oil prices will stabilize over $60US/bbl in 2H 2026.
I see significant upside for Freehold if natural gas prices in Western Canada stay over $3.00Cdn/year.

Deep Dive Video: https://www.youtube.com/watch?v=3boMa9nDmMw