The Company in a Nutshell
- The company owns royalties on 7.3M acres of land in three Canadian provinces and several U.S. states Vulnerable to oil and gas prices, despite its ultra low operating cost business model Caution: high yield, absence of dividend increases since August 2022, and an increasing payout ratio
| Date Reviewed | 08/20/2025 |
| Company Name | Freehold Royalties Ltd |
| Symbol | FRU.TO |
| Sector | Energy |
| Industry | Oil & Gas E&P |
| Beta | 1.25 |
| PRO Rating | 2 |
| Dividend Safety | 2 |
Business Model
Freehold Royalties Ltd. is a North American energy royalty company. The Company manages non-government portfolios of oil and natural gas royalties in Canada with a sizeable land base in the United States. Its segments include Canada and United States. The Canada segment includes exploration and evaluation (E&E) assets and the petroleum and natural gas interests in Western Canada. The United States segment includes E&E assets and petroleum and natural gas interests primarily held in the Permian (Midland and Delaware), Eagle Ford, Haynesville and Bakken basins largely located in the states of Texas, Louisiana, North Dakota and New Mexico. Its total land holdings encompass approximately 6.1 million gross acres in Canada and approximately 1.2 million gross drilling acres in the United States. Its Canadian mineral title lands, which it owns in perpetuity, cover approximately 1.1 million acres and it also has gross overriding royalty and other interests in approximately five million acres.
| Current price | 13.78 |
| ROE | 14.75 % |
| ROIC | 11.00 % |
| Shareholder Yield | 0.05 % |
| 5-Yr Total Return | 428.50 % |
| 1-Yr Total Return | 7.00 % |
| Next Earnings Date | 11-05-25 |
Latest Quarter Information
What the CEO said:
Freehold’s second quarter production of 16,584 boe/d increased 2% compared to last quarter and 9% from the second quarter of 2024. Our U.S. assets delivered meaningful production growth of 7% over the first quarter of 2025. Supporting this growth has been improvements in well productivity where recent new well results in both the Permian and Eagle Ford basins have demonstrated production rates more than double those of the offsetting area type curves as operators continue to enhance drilling and completion approaches.
What we say:
2025-08-19 Freehold Royalties reported a weak quarter with revenue down by 8% and EPS was down by 84%. The revenue decline was driven primarily by a lower realized price of $50.36/boe versus $59.74/boe in Q2 2024, partially offset by volume growth and a 31% U.S. pricing premium reflecting higher liquids weighting and reduced transportation costs. Margin metrics softened with corporate netback at $42.68/boe compared to $49.44/boe last year, reflecting lower commodity prices and realizations; this was partly mitigated by improved cost structure as cash costs fell to $7.38/boe from $9.80/boe.
Investment Thesis
Freehold Royalties (FRU) is a unique player in the oil and gas sector as a royalty company, meaning it does not operate wells or bear extraction costs. Instead, it leases oil-producing land to upstream producers and collects royalties based on production volumes and commodity prices. This structure gives it a capital-light business model with stable operating costs, making it more resilient during industry downturns. While the company benefits from exposure to rising oil prices, it remains vulnerable to commodity price fluctuations and changes in drilling activity by its operators. Playbook: FRU generates revenue from royalty payments on over 7.3 million acres across Canada and the U.S., with 57% of revenue coming from Canadian assets and 43% from U.S. assets. Its diversified production mix includes light and heavy oil, natural gas liquids (NGLs), and natural gas. Growth Vectors: FRU has historically grown through acquisitions, adding new royalty interests to expand production exposure. However, since 2022, acquisition activity has slowed due to high asset valuations. With WTI trading below $80, there may be renewed opportunities to acquire assets at lower prices. Economic Moat: Freehold benefits from a low-cost structure and broad geographical diversification. However, it lacks pricing power and is entirely dependent on third-party operators for production. Its main competitive advantage is its ability to generate high-margin cash flow with minimal capital investment.
Dividend Triangle
| 5-Yr Rev. Growth | 17.05 % |
| 5-Yr EPS Growth | 0.00 % |
| 5-Yr Div Growth | 11.40 % |
Potential Risks
While FRU’s royalty model shields it from operational risks, it remains vulnerable to commodity price swings, operator activity, and debt financing conditions. After the peak created by COVID, the company hasn't been able to increase its dividend since 2022. Business Vulnerabilities: FRU’s revenue is tied to WTI and Edmonton Light Sweet crude prices. When oil prices decline, royalty revenues fall accordingly, even if the company’s operating costs remain low. Additionally, while FRU does not bear drilling costs, its operators do. If their costs rise due to inflation or higher interest rates, they may reduce drilling activity, impacting FRU’s royalty volumes. Industry & Market Threats: The broader energy market is transitioning toward renewables, which could impact long-term oil demand. Additionally, if oil companies prioritize cost-cutting during price downturns, FRU’s royalty income may decline. The company also faces foreign exchange risks, as 43% of revenue comes from the U.S. Competitive Landscape: FRU competes with other royalty firms like PrairieSky Royalty (PSK) and Topaz Energy (TPZ). While it offers a higher dividend yield than its peers, it trades at a lower valuation multiple. Investors should consider whether the high yield compensates for the company’s exposure to commodity volatility.
| Debt/Equity | 0.25 |
| Financial Debt to EBITDA (TTM) | 1.00 |
| Current Ratio (Quarterly) | 1.55 |
| Credit Score | 79 |
Dividend Growth Perspective
FRU is able to maintain its dividend payment as long as oil prices don’t fall below US$50 WTI. In the meantime, it offers a 7-8% yield! Nice, right? Not so fast. While the FFO payout ratio seems in order, there has been no dividend increase since August 2022. Though many tout it as a solid defensive play in the oil and gas industry, its dependence on commodity prices has weakened its dividend triangle. Limited share appreciation potential and the absence of dividend increase make this look like a deluxe bond or, worse, a dividend trap unless oil prices rally.
| Dividend ($) | 1.08 |
| Dividend Yield Fwd | 7.80 % |
| Dividend Frequency | Monthly |
| Average 5-Yr Yield | 7.35 % |
| Payout Ratio (%) | 109.70 |
| Cash Payout Ratio (%) | -264.50 |
| DGR 1-Yr | 0.00 |
| DGR 3-Yr | 26.80 |
| DGR 5-Yr | 11.40 |
| DGR Streak | |
| Chowder Score | 19.20 |
| Next DVD PMT | 10-15-25 |
Valuation
| Recent Annual Dividend Payment | $ 1.08 |
| Expected Dividend Growth Rate Years 1-10 | 0.00% |
| Expected Terminal Dividend Growth Rate | 1.00% |
| Discount Rate | 10.00% |
| Discount Rate (Horizontal) | |||
| Margin of Safety | 9.00% | 10.00% | 11.00% |
| 20% Premium | $ 15.23 | $ 13.57 | $ 12.24 |
| 10% Premium | $ 13.96 | $ 12.44 | $ 11.22 |
| Intrinsic Value | $ 12.69 | $ 11.31 | $ 10.20 |
| 10% Discount | $ 11.42 | $ 10.18 | $ 9.18 |
| 20% Discount | $ 10.15 | $ 9.05 | $ 8.16 |
Video Tutorial: How to Read the Stock Cards DDM Valuation
| Market Cap | 2 B |
| PE Ratio | 18.15 |
| Fwd PE | 16.25 |
| Price to Book Ratio | 2.20 |
| DDM Valuation | 11.31 |
| Average 5-Yr PE | 356.07 |
| Value Score | 66 |
- All financial metrics are updated weekly.
- The DSR PRO rating and Dividend Safety Score are updated quarterly.
- The analysis (investment thesis, risk potential, dividend growth perspective and DDM calculation) is reviewed every 6 months.
- The PDF format includes only comments (no metrics) and is reviewed every 6 months.