Unique Oil & Gas Play Looks Set to Provide Good Income and Growth

Freehold Royalties Ltd. (TSX:FRU) shares have climbed more than 28% since Capital Ideas wrote about the company less than six months ago

Capital Ideas Media | September 10, 2021 | SmallCapPower: While it might seem like a strange pivot to talk fossil fuels after extolling the benefits of electric vehicle infrastructure investing, truth be told, our oil and gas consumption needs will not be ending anytime soon.

(Originally published on Capital Ideas Media on March 16, 2021)

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After flirting briefly with a sub-US$20 WTI oil price in April 2020, crude is now above $60 and a few prognosticators are mentioning the possibility of $100 oil again.

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[Freehold Royalties shares have climbed more than 28% since Capital Ideas wrote about the company less than six months ago]

Investors who want to play the space and are comfortable taking on more risk might want to consider Freehold Royalties Ltd. (TSX:FRU).

Freehold owns a diversified royalties portfolio, with production balanced between oil and natural gas liquids (55%) and natural gas (45%), of more than 6.3 million gross royalty acres in Canada and over 400,000 gross drilling unit acres acquired recently in United States.

As a royalty company, Freehold doesn’t expose shareholders to the same level of risk as a pure-play exploration and production company, yet its investors will still benefit from a rising energy price environment.

Freehold recently boosted its monthly dividend by 50% to $0.03 a share (giving its stock a current yield of 4.8%) but still has a 2021 payout ratio of less than 50%.

“We believe that at current prices the U.S. acquisition Freehold made should be almost entirely economical now with drilling activity likely on the upswing with WTI north of $60 per barrel,” iA Capital Markets analyst Michael Charlton wrote in a note to clients.

“We applaud Freehold for getting in front of the puck on this one, picking up assets at pricing lows and continuing to quietly pick away at assets, adding another 75 boe/d in 2021 in the Bakken and Permian basins for $4.7 million or $62,267 per flowing barrel,” he added.

This as Desjardins analyst Chris MacCulloch raised his target price on FRU stock to $10 per share from $8.50 with a “Buy” rating, seeing further upside as the market gains comfort with the oil price recovery.

“The Company is also well-positioned to continue increasing the dividend later this year while retaining dry powder to fund further M&A opportunities,” Mr. MacCulloch said.

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