Freehold Royalties Ltd (FRU.TO)

This has exposure to oil, which was the volatility in the stock in the last 1.5 years. As a royalty producer, it has almost zero CapX and very low leverage, so it is more defensive relative to other oil producers. Expects there will be a dividend increase, if not in Q1, then in Q2.This has exposure to oil, which was the volatility in the stock in the last 1.5 years. As a royalty producer, it has almost zero CapX and very low leverage, so it is more defensive relative to other oil producers. Expects there will be a dividend increase, if not in Q1, then in Q2.

A Canadian oil/gas royalty company. Do the drilling on about 10% of their business, and on the other 90% other people do the drilling and spend the CapX, and they just get a royalty off the top line. Now that oil is over $50, there could be a dividend bump, because they tend to pay out about 70% of cash flow in dividends, and are currently at about 45%. Dividend yield of 3.83%. (Analysts’ price target is $16.36.)

It is caught up in the Canadian energy sell off. He likes royalty companies and they are a great way to participate without having to drill wells. They reduced their dividend. It is not a safe dividend like a utility, but you get the benefit of the rising oil price. The question is how we move our crude to the US.

His model price is $7.31. It is going to lose money this month, and only make $0.17 next year. He would prefer US money centred banks.

An oil/gas royalty company, one of the larger ones in Western Canada. Trading at a discount to its closest comparable, PrairieSky (PSK-T). Dividend yield of 3.43%, and he thinks it could increase next year. (Analysts’ price target is $15.61.)

A company he really likes. They are making good cash flow at $45 oil. Being a royalty company, and not a producer, they have very low capital expenditures, and make money on production that occurs on their land. A relatively conservative way to play oil and gas, with a nice dividend. The dividend is well covered, and could actually be increased. They have a stated payout ratio target of about 60%-80%, and are currently below that, so you could see a reasonably good sized dividend increase in 2017. It is all contingent on oil. 4.5% dividend yield.

Royalties are very sustainable businesses, and is essentially the model that she looks for in free cash flow growth. One of the most sustainable businesses out there today, and believes it will be one of the first to increase its dividend when oil prices start to turn. They have a very, very clean balance sheet. Compared to other royalty comps, they are much cheaper. The spread between this company and Prairie Sky (PSK-T) is as wide as it has ever been. Dividend yield of 4.38%.

FRU-T vs. TOG-T. His preference is FRU-T. You have a solid balance sheet and good sponsorship.

It is running into resistance on a short term basis. You’d like to see this one break out of the recent range before buying it. It broke a nice downtrend at the beginning of this year. It has a significant base. You could buy it at the low end of its band, or when it breaks out above it.

Whitecap Resources (WCP-T) or Freehold Royalties (FRU-T)? When you are thinking between 2 light oil producers like this, there is really a big business model difference. Whitecap is an operator. It owns lands and produces wells and does everything itself. This one is a royalty company, where other players produce on their land and they get a fee for that. It is a little less risky, but Whitecap has a little more upside if oil prices go up.

A royalty company, and a way of trying to reduce risks and volatility. It is always compared to PrairieSky (PSK-T), but about 4^th the size and trades at about a 50% discount in terms of valuation. He likes the valuation and recently bought the equity issue, which he feels gives good torque to oil. It is about two thirds oil. Payout ratio is only two thirds of its cash flow, and about two thirds of that is the actual dividend. Solid balance sheet.

An interesting business. They have basically become a shadow lending bank. The challenge is that this requires a lot of CapX. The cheque that is written in exchange for the royalty has to be funded by shareholders. Prefers PrairieSky (PSK-T) instead, where you are essentially the government and you own the land and the mineral rights associated with it.

(A Top Pick August 17/15. Up 13.02%.) Has a large land position in Alberta, where they lease out the land to producers and get paid a royalty.

The valuation gap between this and its closest peer, PrairieSky Royalty (PSK-T), is really wide. The current yield, even if there is downside in the share price, it is at the bottom and he feels pretty solid about the dividend payout at that level. There is a big investment by Canadian National (CNR-T) pension plan, and it feels good being alongside that. This has some opportunity for good participation in an oil price recovery. Dividend yield of 4.2%.

Over 70% of their business is based on a gross overriding royalty, so they have exposure to the top line of the business, but not all the operating costs underneath it. There is a lot of merit in this kind of a business model. They tend not to hedge production, so you get full exposure to the upside in a name like this.