With the Bank of Canada holding its policy rate steady at 2.25% in July, savers and income investors find themselves in an awkward middle ground — rates are no longer unusually high, but they are not falling fast enough to lift every rate-sensitive asset. Against this backdrop, two TSX-listed high-yield names are commanding attention for offering payouts that vastly exceed the central bank’s benchmark: Freehold Royalties (TSX:FRU), yielding roughly 6.6%, and TELUS (TSX:T), where the dividend yield has swelled to nearly 11.7%.
Freehold Royalties does not operate drilling rigs or build costly oil projects. Instead, it holds royalty interests across approximately six million gross acres in Canada and 1.2 million drilling acres in the United States. Energy producers develop those lands with their own capital, and Freehold receives a percentage of the resulting revenue. This asset-light structure gives shareholders exposure to production volumes and commodity prices without requiring the company to fund every well, generating attractive margins and recurring cash flow.
In the first quarter, Freehold reported funds from operations of $59 million and paid out roughly $44 million in dividends, placing the payout ratio near 75% and leaving room for acquisitions, debt reduction and future growth. Production averaged 15,533 barrels of oil equivalent per day, with liquids making up 65% of output. The company expects full-year 2026 production between 15,500 and 16,300 boe/d. Around half of its revenue now comes from the United States, providing a more balanced geographic mix. Management believes the current dividend remains sustainable even if West Texas Intermediate crude falls to around US$50 per barrel. Because Freehold pays monthly, shareholders can reinvest cash throughout the year, allowing compounding to work while the interest-rate outlook stays uncertain. Still, the stock depends on commodity prices and the drilling appetite of outside operators; a prolonged slump in oil or natural gas could weaken funds from operations and eventually pressure the dividend.
TELUS presents a very different profile. The telecommunications giant’s eye-catching 11.7% yield comes as the company undergoes a significant transformation. Victor Dodig assumed the role of chief executive officer on July 1, alongside new chief financial officer Gopi Chande. On July 22, Dodig unveiled a sweeping executive reorganization that will take effect on September 1, 2026. The shake-up raises an obvious question: can TELUS maintain its outsized payout, or is a strategic dividend reset on the horizon?
Even if the board chose to slash the dividend by half — bringing it closer to industry norms — the passive-income case would remain compelling. A 50% cut would lower the yield to about 5.8%, a level fully covered by recurring free cash flow. Such a move would free up hundreds of millions of dollars annually that could be redirected toward aggressive debt reduction, share repurchases or strategic investments such as expanding artificial-intelligence data centres to strengthen the company’s position in Canada’s Sovereign AI program. That kind of reinvestment would help TELUS stay competitive with rivals like BCE, which is also building out AI infrastructure. Applying the Rule of 72, an investor collecting a sustainable 5.8% yield would need average annual capital gains of just 1.4% to double their money in a decade. Achieving that modest growth requires only single-digit annual increases in revenue and free cash flow per share, with share dilution kept in check and valuation multiples stable. If Dodig’s execution impresses the market, multiples could even expand.
The foundation for future growth is already being laid. On May 20, TELUS announced a $66 billion investment in Canada through 2030 to bolster connectivity and support national AI leadership. At the same time, as heavy network buildouts wind down, the company is pushing free cash flow higher. Management has reaffirmed a consolidated free cash flow target of $2.4 billion for 2026, representing 10% growth, while capital expenditures decline by a similar magnitude. Consolidated service revenue rose 1% in the first quarter, and full-year guidance calls for growth of 2% to 4%. With the stock trading at roughly seven times forward price-to-free-cash-flow, the valuation offers a margin of safety whether the current dividend remains untouched or is prudently reset.
For investors seeking long-term passive income, these two high-yield stocks offer distinctly different risk-reward profiles. Yet both stand out by delivering yields far above the Bank of Canada’s policy rate, providing an alternative way to generate returns while the central bank stays on pause.
