Turning $100,000 into a big monthly passive income is certainly a great idea. Yet, this may sound completely far-fetched to many! For example, if you have $100,000 and are looking to earn $800 a month, you are going to convert this into an annual income of $9,600, which means you need to create 9.6% returns through dividends and stock growth. But if there’s a potential for a dividend stock to do this month after month, Royalties owned (TSX:FRU) is one to consider.
Breaking it down
First, let’s take a look at what FRU stock does and what it takes to generate this income. FRU is one dividend stock operating as a Canadian energy royalty company. Freehold Royalties is a Canadian energy royalty company. The company does not drill or operate water wells, but does own mineral titles and leases land to energy producers in Canada and the US. In return, it collects a percentage of production revenues (royalties) without assuming the operating costs or capital risk of exploration. That structure provides unusually stable cash flow in the oil and gas world, while the company operates with low overhead costs and high margins.
At the time of writing, FRU stock operates on a monthly dividend of approximately $0.09 per share, or $1.08 per year. This gives the current dividend yield of 8% at the time of writing. Additionally, the dividend has risen steadily since it was reinstated in 2021 after the oil crash, and analysts expect future increases if oil remains near $80 a barrel.
To figure out how to make $800 a month, you can either put that $100,000 straight into the stock for dividends, or take a longer-term view. Right now, it would take almost $150,000 to create $800 a month from dividends alone. Yet the stock has grown at a compound annual growth rate (CAGR) of 28% over the past five years! So taking that into consideration, this is what investors could earn.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | SHARE INCREASE | NEW PRICE | RETURNS | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|---|---|---|
| FRU | $13.72 | 7,289 | $1.08 | $7,872 | Monthly | 28% | $17.56 | $26,526 | $100,000 |
Worth the investment?
So now you’ve created a passive income of a whopping $34,398 from a combination of yields and dividends. That is far more than the $9,600 earned, but not that stable since it’s not all from dividend income. Still currently offering investors $2,866.50 in monthly income!
How likely are we to see that cash flow? Analysts believe profits are strong, with operating funds at $76 million and net income at $57 million, both up year-on-year. Furthermore, net debt to funds from operations has very low leverage. In fact, it looks like the company will outperform in the near future, given its revenue exposure of 55% to oil and 45% to natural gas.
There are certainly risks associated with exposure to the decline and rise of oil and gas prices. But with a market cap of nearly $2 billion, the trade is good but could move sharply as energy sentiment shifts. All in all, it’s not without risk, but it does appear to have a path to growth.
In short
FRU stock is a solid dividend stock that now looks like it could even be a good deal. It is not something to buy, hold and simply accumulate income. However, if your goal is a huge monthly income, that can certainly come your way through an investment like FRU stock.
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