Let’s Look Over These Canadian Royalty Stock Powerhouses

ByDan Kent Published On:

Key takeaways

Royalty stocks offer stable, passive income – Since they earn revenue from top-line sales rather than managing operations, royalty companies provide reliable cash flow and attractive dividends.

Diversification across industries reduces risk – The Canadian royalty sector spans fast food, mining, and energy, allowing investors to gain exposure to different markets while minimizing operational uncertainties.

Commodity price sensitivity remains a key factor – While royalty companies avoid direct operational risks, their revenues are still tied to factors like oil, gold, and iron ore prices, making them dependent on broader market trends.

3 stocks I like better than the ones on this list.

Canada is home to a broad range of royalty companies and structures. In this piece, I plan to shed light on a selection of them, while also pointing out some of the strongest ones in the country.

I plan to cover a wide variety of royalty companies as well. I’ll highlight gold and energy streamers, precious metal producers, and even restaurant royalties.

First, lets dive into how they work.

What is a royalty stock, and how do they work?

To highlight the business model of a royalty company, let’s first use two non-royalty examples, Restaurant Brands International (TSE:QSR) and Agnico Eagle Mines (TSE:AEM).

To generate earnings, these companies, along with many other Canadian stocks, must build restaurants/mines, hire staff, and operate distribution networks to deliver goods, among many other business operations.

This can lead to volatile results overall, particularly in climates of volatile commodity prices and inflation. For example, the price of livestock and even wage pressures could erode the earnings of a company like RBI. And for a company like Agnico, rising gasoline prices and equipment costs can impact earnings.

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With a royalty, the business model is much easier, and for the most part, there is no exposure to the business’s daily operations.

A restaurant royalty, for example, may take a percentage of a restaurant’s revenue for the rights to utilize its trademark. So even if wages go up or the price of its food goes up, considering the royalty fund takes its chunk of the pie before these expenses are factored in, cash flows are much more stable.

It gets a bit more complex with companies and royalties in the mining sector. However, this basic introduction to a royalty company should give you a basic understanding of how they work.

Canadian royalty stocks are a popular investment vehicle for those seeking a strong passive income stream. Their business structures are often simplistic and allow for consistent revenue generation and, thus, consistent distributions.

So, with that bit of knowledge, let’s now dig into some of the top royalty companies in the country to buy today.

What are the top Canadian royalty stocks to buy right now?

A leading gold-focused royalty and streaming company

Franco-Nevada (TSE:FNV)

Franco-Nevada is one of the world’s largest royalty and streaming companies, primarily focused on gold, but also exposed to silver, oil, and other resources. Instead of mining itself, the company finances mining projects in exchange for a percentage of production or revenue. This model offers exposure to commodity prices without the risks of mine development and operations.

P/E: 54.4

5 Yr Revenue Growth: 5.7%

5 Yr Earnings Growth: 9.3%

5 Yr Dividend Growth: 7.8%

Yield: 0.9%

  • Diversified asset base – Royalties and streams from over 400 projects provide stability.
  • No direct mining risks – Avoids cost overruns, labor disputes, and environmental issues.
  • Strong gold exposure – A play on rising gold prices, often seen as a safe-haven asset.
  • High-margin business model – Franco-Nevada earns revenue without incurring mining costs.
  • Consistent dividend growth – Pays a reliable and growing dividend.
  • Solid balance sheet – Debt-free with strong cash flow generation.
  • Gold price movements – Revenue is tied to gold prices, which fluctuate with market conditions.
  • New streaming deals – Expanding its portfolio adds long-term value.
  • Global mining activity – More mining projects mean more royalty opportunities.
  • Geopolitical risks – Many assets are in jurisdictions with political uncertainties.
  • Gold price volatility – A drop in gold prices would impact revenue.
  • Mining project delays – If miners struggle, royalty payments could be affected.
  • Regulatory changes – Changes in mining laws could impact revenues.
  • Competition for deals – More companies are entering the royalty space, increasing competition.

Collects royalties from oil and gas production across North America

Freehold Royalties (TSE:FRU)

Freehold Royalties owns mineral rights and collects royalties from oil and gas producers operating on its land. Unlike exploration and production companies, Freehold doesn’t drill or manage operations, making it a lower-risk way to gain exposure to the energy sector. With assets in both Canada and the U.S., it benefits from diverse revenue streams.

P/E: 13.0

5 Yr Revenue Growth: 17.1%

5 Yr Earnings Growth: 89.6%

5 Yr Dividend Growth: 11.4%

Yield: 8.4%

  • Exposure to oil and gas without operational risk – Earnings come from royalties, not drilling.
  • Diversified land portfolio – Over a million acres provide stable revenue.
  • High-yield dividends – Attractive payouts for income-focused investors.
  • U.S. expansion boosts growth – Recent acquisitions increase exposure to U.S. shale plays.
  • Oil price upside – Higher oil prices mean increased royalties.
  • Low debt levels – Financial flexibility makes it resilient during downturns.
  • Oil and gas prices – Royalties are directly tied to energy market fluctuations.
  • Production growth on its lands – More drilling activity increases revenue.
  • M&A activity – Acquiring more royalty lands can drive long-term growth.
  • Regulatory shifts – Government policies on drilling and emissions could impact future revenues.
  • Commodity price swings – Lower oil and gas prices mean reduced royalty payments.
  • Declining production – If oil companies cut back drilling, royalties may decline.
  • Environmental regulations – Stricter rules on fossil fuels could hurt long-term prospects.
  • Interest rate hikes – Higher rates could make dividend stocks less attractive.volatile, and often move in larger amounts than the underlying commodity it tracks

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Earns royalties from iron ore production in Newfoundland

Labrador Iron Ore Royalty (TSE:LIF)

Labrador Iron Ore Royalty owns a stake in Iron Ore Company of Canada (IOC) and earns revenue through royalties on iron ore production. IOC is a major producer of high-quality iron ore pellets and concentrate, primarily exporting to global markets. As a royalty holder, LIF benefits from IOC’s production without bearing mining risks.

P/E: 11.0

5 Yr Revenue Growth: 3.2%

5 Yr Earnings Growth: -3.2%

5 Yr Dividend Growth: 24.6%

Yield: 10.0%

  • Pure-play on iron ore demand – Essential for steelmaking, iron ore remains in high demand.
  • Steady royalty income – Earns a fixed percentage of IOC’s sales.
  • High-quality iron ore – IOC’s premium-grade ore commands better pricing.
  • Dividend powerhouse – Pays substantial dividends based on royalty income.
  • Strong global steel demand – Infrastructure projects drive demand for iron ore.
  • Limited operating risks – Doesn’t deal with the costs of running a mine.
  • Iron ore price trends – Revenue fluctuates with global iron ore prices.
  • Chinese steel demand – China is a major iron ore consumer, impacting pricing.
  • IOC production levels – Higher output means more royalties.
  • Shipping costs and logistics – Transportation expenses can impact profitability.
  • Iron ore price volatility – Prices are cyclical, affecting royalty payments.
  • Global economic downturns – Weak steel demand could lower revenue.
  • Operational disruptions – Strikes or equipment failures at IOC could impact production.
  • Currency fluctuations – Revenue is affected by exchange rate shifts.

Canada’s Cheapest Pizza Chain

Pizza Pizza Royalty Corp (PZA.TO)

Pizza Pizza Royalty Corp through its subsidiary, Pizza Pizza Royalty Limited Partnership, owns and franchises quick-service restaurants under the Pizza Pizza and Pizza 73 brands. It receives the benefit of Pizza Pizza Royalty and Pizza 73 Royalties, as well as royalty payments under the international agreement, indirectly through its interests in the partnership.

P/E: 14.2

5 Yr Revenue Growth: 2.6%

5 Yr Earnings Growth: 2.5%

5 Yr Dividend Growth: 0.7%

Yield: 6.7%

  • Pizza Pizza is one of Canada’s leading quick-service pizza chains, with a strong brand identity and extensive reach, particularly in urban areas and populous provinces like Ontario. Its sister brand, Pizza 73, provides additional exposure in Western Canada.
  • Similar to other royalty funds, PZA earns income from a percentage of system sales, offering stable and predictable cash flows with minimal operational risk.
  • The fund is structured to provide consistent monthly distributions, making it appealing to income-focused investors.
  • Pizza Pizza is known for offering value-priced menu options, similar to Dominos, and convenience through delivery and takeout, positioning it well in a competitive quick-service pizza market.
  • Same store sales growth. As a royalty fund, system sales directly impact Pizza Pizza’s revenue. SSSG reflects the chain’s ability to grow organically through higher customer traffic and average ticket size.
  • Menu innovation. Pizza Pizza operates in a competitive market dominated by players like Domino’s, Pizza Hut, and local pizzerias. Offering innovative menu items and maintaining a strong value proposition is essential to attracting and retaining customers.
  • Store counts. Pizza Pizza went through some difficult operation times in which store counts started to shrink. Although the company has rebounded post-pandemic due to a cost of living crisis among Canadians causing them to shift to cheaper alternatives, it will need to maintain momentum in a falling rate environment.
  • Pizza Pizza faces intense competition from both global giants like Domino’s and local independent pizzerias. Competitors often undercut on pricing or offer differentiated products that could impact Pizza Pizza’s market share.
  • Pizza Pizza’s revenue is heavily concentrated in Canada, mainly Ontario, making the business particularly dependent on the economic conditions and competitive environment within this province. Any regional challenges, such as declining consumer spending or increased competition, could disproportionately impact overall system sales.
  • System-wide operations, including delivery logistics, supply chain management, and restaurant staffing, are critical to Pizza Pizza’s success. Disruptions caused by labor shortages, rising wages, supply chain bottlenecks, or technology failures (e.g., online ordering platforms) could harm sales and franchisee performance.

Overall, these are 4 strong Canadian royalty options that will generate strong passive income streams

Whether you’re looking for exposure to a casual dining restaurant, the mining industry, the oil and gas sector, or iron ore, these 4 options should help you.

Companies with royalty interests generally are popular among the passive income crowd searching for Canada’s best dividend stocks, particularly those who want exposure to cyclical sectors without the volatile movements in share price and earnings.

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