1 Canadian Energy Stock Quietly Positioning for a Big Year

Many new investors consider Canadian energy stocks to be highly unpredictable because commodity prices can swing sharply and global uncertainty can rattle markets, which could make the shares of energy producers highly volatile. But beneath all that volatility, some oil and gas companies continue to strengthen their businesses and set themselves up for long-term growth.

One Canadian energy firm that appears to be doing exactly that is Freehold Royalties (TSX:FRU). While it may not be one of the most popular energy stocks on the Toronto Stock Exchange, the company has consistently improved its operations, expanded its royalty portfolio, and continued rewarding shareholders with reliable monthly income. In this article, I’ll explain why this Canadian energy stock could be positioning itself for a very strong year ahead. Let’s take a closer look.

Freehold Royalties stock

Headquartered in Calgary, Freehold Royalties manages a large portfolio of oil and natural gas royalty lands in Canada and the United States. Unlike traditional producers, Freehold earns royalty income from production activity on its lands without directly funding large drilling operations itself. That business model helps it keep costs lower while still providing exposure to energy prices and production growth.

At the time of writing, FRU stock traded at $17.41 per share with a market cap of $2.9 billion. Over the last year, the stock has surged by nearly 54% due mainly to its improving financial performance. The company also offers a monthly dividend, with an annualized yield of about 6% at the current market price.

Record production and stronger cash flow

Despite global economic concerns, Freehold’s latest full-year results highlighted why investors have become increasingly optimistic about its future. Its total production for the year reached a record 16,294 barrels of oil equivalent per day, up 9% year over year (YoY). A major contributor to that production growth was its U.S. operations, where Freehold’s production climbed 33% from a year ago, helped by acquisitions completed in late 2024 and continued development across its U.S. portfolio.

At the same time, the company’s heavy oil production in Canada rose 13% YoY, helping it offset weaker Canadian natural gas drilling activity. Last year, Freehold’s liquids weighting also improved to 66% in 2025 from 64% in 2024, which is important because crude oil and natural gas liquids accounted for 90% of its total revenue during the year.

Leasing activity and balance sheet strength

In recent years, Freehold’s leasing activity has also remained strong. The company entered into 91 new leases in Canada and 25 new leases in the United States during 2025. Together, bonus and leasing revenue contributed $8 million to its financials, up sharply from $3 million in the previous year.

More importantly, its balance sheet also appears healthy. The company returned $177 million to shareholders through monthly dividends last year while maintaining a dividend payout ratio of 75%. Meanwhile, its long-term debt declined by $18 million to $283 million.

That relatively conservative debt level gives Freehold additional flexibility to continue investing in growth opportunities while still supporting shareholder payouts.

Why this stock could be positioned for a big year

Notably, Freehold’s management expects production to average between 15,500 and 16,300 barrels of oil equivalent per day in 2026. That guidance reflects some near-term pressure from lower drilling activity in late 2025, weaker Canadian natural gas pricing, and weather-related downtime in the southern United States. However, management also expects production to moderate in the first half of 2026 before returning to growth in the second half.

Freehold is also continuing to add to its royalty portfolio, as it acquired $38 million of additional crude oil-focused royalty interests in the Permian Basin and Canada last year. These assets are still in the early stages of development and could support future drilling inventory over time.

Given these solid fundamentals, I wouldn’t be surprised if Freehold Royalties stock outperforms the broader market by a big margin in 2026 and beyond.

The post 1 Canadian Energy Stock Quietly Positioning for a Big Year appeared first on The Motley Fool Canada.

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More reading

• Use a TFSA to Earn $500 a Month With No Tax
• 3 Ultra-High-Yield Energy Dividend Stocks to Buy and Hold for 2026
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• How to Create Your Own Pension With Canadian Dividend Stocks

Fool contributor Jitendra Parashar has no position in any of the stocks mentioned. The Motley Fool recommends Freehold Royalties. The Motley Fool has a disclosure policy.