Today I will complete the assignment for Marni who wanted my thoughts on two stocks. Last time I analyzed the charts for Whitecap Resources Inc. (WCP TSX) and now I will undertake an inspection of Freehold Royalties Ltd.(FRU TSX). This will be the first time that I examine the case for FRU which holds royalty interests in over 30,000 wells. In the oil and gas sector ownership of royalty interest bestows title to a portion of the resource or revenue that is produced but does not obligate the owner of the royalty to bear any of the cost of operations.
In January 2015 the board of directors of FRU announced that monthly dividends would be reduced to $0.09 for the year down from $0.14. Clearly the board has been responding to market conditions in adjusting its distributions to shareholders.
A probe of the charts will identify the trend, support, and resistance that are in play.
The three-year chart has become a familiar sight when auditing the charts for companies in the energy sector. The stock hit a high near $26.00 in June of 2014 and then began a decline that took it to a 52-week low of $8.72 by August of 2015. The MACD and the RSI indicated that the shares were overbought at the time and were set to pullback. FRU broke below the 50-day moving average in July and as the decline continued it breached the 200-day moving average in late September.
The death cross that surfaced in late October of 2014 alerted the astute investor that they could expect more selling. The failure to hold support at $17.00 in June of 2015 and then $16.00 in July set the stage for an aggressive retreat to the 52-week low by August.
The six-month chart indicates that FRU was oversold through July and August. An extended oversold posture points to investor perception that sellers are in control of the market. The MACD and the RSI signalled a buy in late August as the stock bounced off the 52-week low and ran to near $11.00.
At the current price the dividend yield is 10.4% which may entice some but given the established downtrend, the death cross, and the series of lower lows and lower highs investors should approach FRU with caution.
Next time I will analyze the charts for Bank of Montreal (BMO TSX) and The Canadian Imperial Banks of Commerce (CM TSX) for Sandra.
Make it a profitable day and happy capitalism!
Make it profitable day and happy capitalism!