Freehold Royalties Ltd (FRU.TO)

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.

A great, long term holding. It gives you exposure to a broad variety of wells, without taking “drill bit” risk. A solid management team. However, this is not a great time to be holding a resource related stock. If you own, in the long-term you will do fine with this.

Has added to his position in the last several months. Likes the royalty structure, and this company is pretty conservative. They did an acquisition of Husky (HSE-T) assets recently, and did an equity issue that was oversubscribed. Believes this will be one of the 1^st companies to increase their dividend.

(A Top Pick May 1/15. Down 33.06%.) He got stopped out on this.

(A Top Pick May 1/15. Down 24.61%.) Sold this a year ago. Had bought it in order to hide when oil got worse. It’s attractive at this price if you think oil is going higher. He would wait, because it has had a nice rebound.

He allows things to float up and down and does not use stops. They get compensated when people drill on their lands. He thinks they are looking at a dividend cut this week but he still owns it in portfolios.

This gets a royalty on production and drilling is down, so doesn’t see any need to rush to own this.

This receives royalties from the oil and gas industry. They adjust their distribution to the spot price of oil, so are running a distribution that is reflective of a $38-$39 oil price. They say that the distribution at the present oil price is sustainable. They have the best balance sheet in the oil/gas industry.

(Market Call Minute.) A good strong company, but she prefers PrairieSky (PSK-T) right now, if you are looking for royalties.

This and PrairieSky (PSK-T) are great companies. These should be great types of businesses looking after pension type money, but they are just too expensive. Also, the gas price is horrible. The risk is that you might be backing out gas from Western Canada, and does it go? Maybe it just doesn’t get produced.

He doesn’t do resource stocks any more. This has been a great long term Hold if you want exposure to oil/gas in a conservative way. This is a royalty. It is a capital efficient structure. They do a little bit of drilling for tax purposes, but the bulk of their income comes in through someone else doing the drilling. As a long term holding this is a good one, especially for retirees. Dividend yield of about 7%.