tdTD is Now Forecasting that Freehold will Announce a Hike in Dividend in March. Impact: NEUTRAL In response to eroding commodity prices through 2015/2016, the majority of dividend payers in the E&P sector opted to reduce their dividend levels (or eliminate dividends completely). In retrospect, historical dividend levels for many conventional E&Ps were likely too high even before commodity prices eroded over the past couple of years, resulting in either production atrophy or rising debt levels. Going forward, we predict that most of the E&Ps who reduced their dividend levels will not raise them as commodity prices improve. However, we believe that the FCFrich Oil & Gas Royalty sub-sector will opt to return a portion of its rising FCF to shareholders in the form of increased dividends. Freehold has historically been more flexible with its dividend and has increased/ decreased its monthly dividend level in response to prevailing crude oil prices. Going forward, Freehold has provided clear direction that its all-in payout ratio would range between 60-80% and targets D/CF of between 0.5x-1.5x. Based on these constraints, we forecast that Freehold also has sufficient capacity to materially increase the dividend and continue to reduce its modest debt to the low-end of its targeted range. We believe that it is likely to make an announcement with the release of its Q4/16 results on March 2. We forecast that Freehold will increase its monthly dividend by 25% to $0.05/ share (from $0.04/share), which equates to a current yield of 4.4%. After incorporating this into our estimates, we forecast $55 million of un-allocated cash flow to reduce debt, which equates to YE-2017E D/CF of 0.1x [based on strip pricing of US$55/bbl WTI and $2.90/mcf AECO]. TD Investment Conclusion We continue to favour the robust royalty model relative to conventional E&Ps. In our view, Freehold offers investors many of the attributes of its larger royalty peer PSK-T (i.e., significant royalty production, minimal debt, FCF to increase the dividend, and third-party-funded sustaining capex). However, it is trading at the lowest valuation in our O&G/Mining royalty universe. In our view, a modest increase in dividend should act as a beacon to the strong FCF generation within Freehold's business.