Advertisement

3 Top Canadian Royalty Stocks With Dividend Yields of 6.3% or More

Growing plant shoots on coins
Image source: Getty Images

Written by Daniel Da Costa at The Motley Fool Canada

Investing in dividend stocks is one of the most popular strategies there is, and it makes sense. Owning dividend stocks gives investors the opportunity to earn both passive income as well as significant capital gains. And while there are plenty of dividend stocks on the TSX to choose from, some of the very best with the highest yields are top Canadian royalty stocks.

Royalty stocks are ideal for dividend investors because often these companies are returning a tonne, if not all, of the free cash flow they generate back to investors.

In addition, these companies often have business models that allow them to earn significant and consistent cash flow each month, which they turn right around and pay back to investors.

So if you’re looking for top Canadian dividend stocks to buy now, here are three royalty stocks that offer significant passive income, all with yields of 6.3% or more.

A top Canadian restaurant royalty stock that’s proving to be highly resilient in the current economic environment

If you’re a dividend investor looking for a top Canadian royalty stock that can both return you attractive passive income and offer growth potential over the long run, Pizza Pizza Royalty (TSX:PZA) is an excellent choice.

Not only are Pizza Pizza and Pizza 73 locations — the two brands it owns — located all over the country and some of the best-known brands in Canada, but Pizza Pizza has also proven to be one of the most resilient restaurant stocks you can buy.

As inflation has sent the cost of living soaring over the last year and a half, and higher interest rates make debt more expensive to service, it’s widely expected that consumers will have to lower their discretionary spending, and cutting back on eating out is often one of the easiest ways to do so.

However, given that Pizza Pizza is still a quick service restaurant, plus it’s a low-cost and convenient option, often open later at night than many of its competitors, it has proven to be a loyal long-term investment.

In fact, even more than a full year after recovering from the pandemic, the stock continues to post impressive growth numbers. For example, in its second quarter this year, the top Canadian royalty stock saw same-store sales growth of 9.4%, massively outpacing expectations from analysts.

Plus, with Pizza Pizza now opening up new locations in Mexico, as well as Canada, there is a tonne of long-term growth potential in addition to its 6.3% dividend yield.

So if you’re looking for a top Canadian dividend stock to buy now, Pizza Pizza Royalty is an enticing choice.

A top energy stock for dividend investors

In addition to Pizza Pizza, Freehold Royalties (TSX:FRU) is another top Canadian royalty stock to consider adding to your portfolio.

Freehold earns royalties from other energy companies that are using its land to produce oil and gas. It’s a lower-risk business model that allows the company to constantly earn millions in free cash flow.

It then turns around and returns the majority of it to investors while retaining some as a margin of safety. Meanwhile, the royalty trust invests in acquiring more land in the future and ultimately expanding its portfolio.

Therefore, not only does Freehold offer a dividend yield of more than 7.1% right now, but with an expected payout ratio of just 68% this year, that dividend is also considerably safe.

Plus, with Freehold constantly looking to acquire more land, it also offers compelling long-term growth potential, making it one of the top Canadian royalty stocks to buy now.

A well-diversified royalty stock with a yield of more than 8.6%

Lastly, Diversified Royalty (TSX:DIV) is another excellent option, especially considering its ultra-high dividend yield of 8.6%.

The company collects royalties from seven different businesses, all in different industries, which helps to lower the risk that its income could be impacted in a recession.

Furthermore, the top Canadian royalty stock is always looking to acquire new royalties from well-managed, multi-location businesses in North America to diversify its portfolio even further and gain exposure to more growth potential.

So if you’re a Canadian dividend investor looking to boost your passive income, Diversified Royalty is one of the top stocks to buy now.

The post 3 Top Canadian Royalty Stocks With Dividend Yields of 6.3% or More appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Diversified Royalty Corp.?

Before you consider Diversified Royalty Corp., you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in August 2023... and Diversified Royalty Corp. wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 26 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 8/16/23

More reading

Fool contributor Daniel Da Costa has positions in Freehold Royalties. The Motley Fool recommends Freehold Royalties. The Motley Fool has a disclosure policy.

2023