Freehold Royalties Ltd (FRU.TO)

A royalty company. Basically they own different types of land leases where people pay to drill on their land and they get a percentage of the net back on the production. It’s a good business in the oil/gas sector because it is lower capital cost and higher cash flow. They have been a good dividend payer over time. Cut their dividend in the current downturn, but the yield is still very attractive. Feels the dividend is sustainable at current commodity prices. Dividend yield of 7.8%.

(A Top Pick July 4/14. Down 55.27%.) The royalty concept is an excellent investment vehicle to own, but there are others he would prefer today. Dividend yield of 7.7%.

They continue to pay out way, way more in dividends than what they earn. Because of this, their balance sheet continues to be eaten up. However, if people buy the high-yield and you get a higher price to Book and they issue stock at a very high price to BV, they can essentially use the proceeds of that stock to pay out some of that dividend. It is a great story as long as it works. The problem is that when the oil price collapsed, the story came to an abrupt end. The dividend has not, but the stock has collapsed down to $11. They still have a pretty good balance sheet and he sort of expects they will continue to pay the dividend. Dividend yield of 7.3%.

Sold his holdings last December and hasn’t looked at the valuations since. However, as a long-term story, he thinks it is a great one. Dividend yield of over 10%, which usually indicates a bit of a warning signal. If you own, he would just stick with it right through this downturn. 3-5 years from now you will be very happy.

It depends on your time frame whether you hold or sell. You have to sell if you have a short term view. Until oil prices improve and get them higher royalties, it is one of the more solid companies out there. He has no exposure to this industry at this time.

Dividend could be cut again. It's a great company just because of their royalty structure, but she prefers PrarieSky. But it's a great way to play the current economy because they have a bit of a cushion with their royalty structure.

Because this is a royalty company, it is dependent on energy prices. If you think energy is going back to $60-$70 and trade positively, these royalty companies are great because they don’t have any operating costs. You need to be bullish on the underlying commodity. If you are not bullish, and he means $60+, then just bide your time. There is no rush to buy these things until they show you a little bit of strength.

(Market Call Minute.) Has been a big buyer in this. His big concern is that Penn West (PWT-T) is their biggest royalty payer so if it goes bankrupt, what happens to their royalty income? It is a bit of a concern, but even excluding that, the stock has been pounded, and the royalty model should hold up a lot better than a conventional A&P model.

(Top Pick Oct 2/14, Down 48.96%) Production is only off 5% from where they thought it would be. He likes the company and it is still in his top picks. This would be one of the companies he would start to tip-toe into. They have low development risk. Debt to cash flow is 1.3 times. They cover their dividend with cash flow. They should be okay through this cycle.

He is very fond of royalties. They have made aggressive moves into other kinds of things. He prefers PSK-T, however.

He added to his holdings when they did their recent equity issue. A well-managed royalty situation.

Another example of a long-term trend that has been broken. Also, had very long term support that has been broken. Chart does not look encouraging and he doubts if he would want to own it. Dividend yield of 7.4%.

We are just in the early days of volatility coming back into the market. Now you are going to see the difference between buying a stock that is not growing its earnings moving forward, compared to the last few years. If you do start to Buy or looking at it, maybe leg into it so you still have some cash to buy into it if you are wrong and it goes lower.

(Top Pick August 7, 2014, LONG Freehold Royalties down 37.94%, SHORT PrairieSky Royalty up 22.52%) Pairs trade, likes both business models. Felt that when PrairieSky came out last year it was overhyped and overvalued. PrairieSky was twice the evaluation. Prairiesky's yield was 3%, and Freehold's yield was 6%. When oil prices went down, they both went down. They exited the position in January.

One that she has considered for some time, but chose prairie PrairieSky (PSK-T) instead where she saw less risk. It doesn’t have to do any drilling by itself or rely on 3^rd parties. If looking for a safer place to be in the oil environment, this is a good one because you are getting a royalty which tends to be a lot more sustainable and a lot safer than going with a pure producer.