Sometimes, an organization’s share worth and dividend yield have an inverse relationship. So, investing in beaten-down dividend shares may aid you profit from a excessive yield in addition to capital positive factors when market sentiment recovers.

Freehold Royalties (TSX:TSX) is likely one of the prime TSX dividend shares, which is down 53% from its all-time excessive. Nonetheless, this drawdown has elevated the dividend yield to greater than 8%, making it engaging to income-focused buyers.

Valued at a market cap of $2.2 billion, generates income from oil and gasoline royalties on its land. The corporate targets a 60% dividend payout ratio and requires a $50/barrel West Texas Intermediate (WTI) worth to cowl prices and dividends, whereas implementing share buybacks for extra capital returns.

Let’s see in the event you ought to personal this TSX inventory proper now.

How did the TSX inventory carry out in Q2?

Freehold Royalties delivered stable leads to the second quarter (Q2) of 2205, as manufacturing ranges of 16,584 barrels of oil equal (BOE) per day grew by 9% yr over yr. This manufacturing development showcases the resilience of Freehold’s diversified North American portfolio regardless of unstable commodity markets and financial uncertainty.

Throughout the quarter, 31 high-productivity wells throughout six drilling pads within the Permian and Eagle Ford basins got here on-line with preliminary manufacturing charges exceeding 73,000 BOE per day. These wells outperformed historic offset wells, with Freehold capturing a 1.1% common internet royalty curiosity, greater than double its typical U.S. fee.

The mix of superior effectively efficiency and better royalty percentages created substantial worth for shareholders. Freehold’s publicity to premier operators ConocoPhillips and ExxonMobil, which account for 60% of U.S. income, gives stability.

In Q2, Freehold’s funds from operations stood at $57 million, regardless that oil costs averaged US$64 per barrel, down 11% in comparison with the earlier quarter. Notably, at related oil costs 4 years in the past, Freehold’s funds from operations per share have been 40% decrease, which highlights the portfolio enhancements ensuing from strategic U.S. acquisitions that ship premium-priced gentle oil.

The TSX inventory returned $44 million to shareholders via dividends whereas investing $12 million in undeveloped mineral title lands in core Permian areas, anticipating returns of 10% to twenty%.

With internet debt at 1.1 instances trailing funds from operations and a sustainable dividend payout ratio, Freehold demonstrates sturdy capital self-discipline. Nonetheless, headwinds embrace weaker gasoline pricing, which can affect Canadian Cardium exercise, and ongoing commodity worth volatility that would stress future money flows if sustained.

Is the TSX dividend inventory undervalued?

Given consensus estimates, Freehold is forecast to finish 2028 with a free money movement of $285 million, in comparison with a free money outflow of $184 million in 2024. A widening money movement base ought to allow Freehold Royalties to focus on accretive acquisitions and strengthen the steadiness sheet.

Regardless of the anticipated enhance in free money movement, the TSX inventory is anticipated to keep up its annual dividend per share of $1.08 via 2029.

Furthermore, analysts monitoring the TSX inventory forecast it to achieve 20% over the subsequent 12 months, given worth goal estimates. If we alter for its dividend yield, cumulative returns could possibly be nearer to twenty-eight%.