Stock & Dividend Analysis: Algonquin Power

A lot of dividend investors have a simple rule.

If a company cuts the dividend, then it’s officially dead to them.

There’s no coming back from this fate, either. These folks will hold grudges for decades, and be completely unapologetic about the whole thing. “Oh, (stock x)? Yeah, it cut the divvy back in 1991 and I haven’t followed it since. I thought about lighting the CEO’s house on fire, but that seemed a tad excessive.”

Sometimes this attitude works well, but other times it can be a mistake. I purchased Altagas (TSX:ALA) back in 2018 a few weeks before it cut the dividend. It was obvious the market was pricing in such a cut, but I was convinced the company could turn around.

The dividend cut happened, just like everyone expected. But the investment has been a smashing success.

I also bought Manulife Financial (TSX:MFC) even though it famously cut its dividend during the market chaos of 2008-10. I first bought years after the dividend cut, and slowly accumulated my position between 2018-20. This is another position that worked out nicely for me.

There have been times this strategy has backfired on me, too. I bought a little Algonquin Power and Utilities (TSX:AQN) after the first dividend cut in 2023, paying around $10 per share. There were deep issues there, but I thought the company could recover. A few months later I realized my mistake and moved on, losing a little money in the process.

A few investors who I follow and admire have told me that Algonquin has changed, so I figured I’d take a closer look at it. Should investors treat today’s version of the company the same as the one that existed in 2023? Let’s dive in.

Throughout the 2010s and into the 2020s, Algonquin had two separate businesses under one roof.

The largest and most stable were the utility assets. The company had quietly accumulated electric, natural gas, and even water utilities in Canada, the United States, and even overses. Operating under the Liberty brand, Algonquin has amassed a portfolio that serves some 1.2M customers across 16 different jurisdictions. Power is the largest business, followed pretty much equally by gas and water.

Your author is a big fan of the utility business, especially water. There’s the (remote, at least in my view) possibility that power utilities get disrupted at some point by rooftop solar, which could become so efficient that we also heat our homes with such technology. But there’s no chance that water gets disrupted. We’re pretty much stuck with the status quo there.

Where Algonquin ran into problems is with the other part of its business. The company spent most of the 2010s acquiring renewable power generation assets. In theory, these assets offered upside as both power rates slowly crept higher and as more folks moved into the area. But the division suffered from underperformance (which, hilariously, was blamed on the weather) and then higher interest costs — especially in 2022 and 2023 — as the company gambled on variable rate debt and lost.

Earnings tumbled. From 2016 through 2021, the company increased adjusted earnings from US$0.42 per share to US$0.71 per share. By 2024 the bottom line had plummeted to just US$0.30 per share.

But things are looking up here. The renewables portfolio was sold to LS Power for US$2.28B in 2024, with the deal officially closing in January 2025. The company can earn an additional US$220M in earn outs if certain wind assets perform well. Once debt was paid, the company got cash proceeds of US$1.6B, cash that was put to back to work paying off debt in the existing utilities business.

Despite selling a big part of the business, profitability actually improved in 2025. Once we strip out costs of the transaction, Algonquin generated US$0.30 in EPS in 2024. That improved to US$0.34 per share in 2025. Return on equity — which is a key profitability metric in the utility business — improved to 6.8% in 2025. That compares to 5.5% in 2024.

Management expects better results in 2026, too. Adjusted EPS is expected to improve to US$0.35 to US$0.37 per share this year, with the bottom line expected to rise to US$0.38 to US$0.42 per share in 2027. It isn’t huge, but at least the bottom line is moving in the right direction.

Algonquin is taking additional steps to distance itself from the previous version of the company. Management has been almost entirely replaced. Rod West was appointed CEO about a year ago. The new CFO, Robert Stefani, came aboard just a couple of months ago. Both have significant experience in the utilities industry. We’ll note that an activist investor is mostly responsible for the change. Starboard Value — which owns about 9% of the company — pushed for a clean slate of managers once the renewable assets were sold.

Starboard Value also has a couple of board seats, out of 11 total board members.

We’ll note that while the company’s balance sheet has improved nicely, it has more than US$1.5B in debt maturities due this year. Renewing the debt shouldn’t be a problem, but the rate might be an issue. Interest rates have increased of late as geopolitical risks have rocked the markets, and I won’t even try to predict where they’ll go next. That’s usually a sucker’s game.

While Algonquin has shed the crappy assets and started to turn things around, that’s really only a good start. Why else would someone be interested in Algonquin shares?

The big reason is valuation versus peers. Algonquin has a utilities business that should — in theory, anyway — be as good as the ones put together by peers like Fortis and Emera. You couldn’t say that two years ago when it had the renewable power generation portfolio stapled on, but you can today.

As mentioned above, Algonquin is projected to earn US$0.36 per share in 2026 and around US$0.40 per share in 2027. That averages out to a ~9% improvement each year.

Those earnings are in USD, so we’ll compare them to Algonquin’s price on the NYSE. Shares in USD trade hands for $6.27. That gives us a forward price-to-earnings ratio of right around 17x.

Fortis and Emera, meanwhile, both trade for closer to 20x earnings. Fortis trades for 21× 2026’s projected earnings estimates, while Emera trades for pretty much exactly 20x forward earnings. If Algonquin traded for the same multiple, shares would be around 20% higher. Add on the dividend, and that’s a pretty nice return.

That doesn’t include any tailwinds from Algonquin’s business improving, either. That would add to returns.

In short, Algonquin is expected to grow earnings faster than peers — at least over the next couple of years — and it trades for a lower valuation. There’s the bull thesis in a single sentence.

But on the other hand, it’s easy to argue that Algonquin deserves to trade at a cheaper valuation than peers. It slashed the dividend. Twice. It’s still in turnaround mode. It has a worse ROE than Fortis or Emera. And there are U.S. utilities that trade for about the same valuation as Algonquin (NorthWestern Energy Group is one) that offer better balance sheets and without a history of dividend cuts.

In short, Algonquin is cheap, but I’m not sure it’s cheap enough.

Normally I cover buybacks in this section too, but Algonquin is a serial issuer of shares. That’s the opposite of a buyback.

So we’ll move onto the dividend. This is the part where I outline the bad news about the two dividend cuts. The first happened in 2023 and the next was about 18 months later. The result was the company going from paying a US$0.71 per share dividend in 2022 to a US$0.26 per share dividend in 2025. That’s a 63% drop.

Even after slashing the dividend twice, the payout ratio is still quite high. Adjusted earnings are expected to be US$0.36 per share this year. The dividend should remain at US$0.26. That gives us a payout ratio of just a hair under 75%. That’s about the same as Fortis, and a little below Emera. So peer wise it’s fine, but it’s still a little elevated.

I would’ve gone deeper and cut the dividend to the US$0.10 to US$0.20 range. That would free up a bigger chunk of earnings to put towards debt repayment or growth capex. Besides, after two cuts you’ve chased out most of the dividend investors anyway. I’m not sure why the company would even consider their opinion. Like I mentioned at the beginning, you’re dead to them. It’ll take a decade to make them happy again — if you ever do.

Plus, slashing the dividend to the bone makes it easier to start hiking it again. An increasing dividend along with growing earnings makes the story more compelling for a new generation of shareholders.

Anyway, the dividend should be fine. It might even grow again at some point in the future as earnings grow. But I wouldn’t expect much in the short-to-medium term.

Dividend safety: High
Dividend growth potential: Not much

Dividend investors hate it. Growth investors are uninterested. And all the value investors have been flushed out by 46 decades of underperformance. Or, y’know, something like that.

Who’s left to buy Algonquin shares?

This is a company that is still in the middle of a turnaround. Assets are underperforming. Debt is still pretty high. The dividend payout ratio is elevated, which reduces flexibility. And the market is still waiting to see if the new management team can deliver.

Plus, shares have already ran up. The stock is up 18% over the last year, and up more than 35% versus the lows of 2025. The utility sector has also performed well, and that rising tide has helped lift all boats. It’s the place to hide in times of economic uncertainty.

I like owning utility assets. My portfolio is stuffed full of them. But I’d much rather buy at levels much closer to 52-week lows. My hope would be at that point there’d be better utilities on sale, and the valuation gap wouldn’t matter as much.

Algonquin could still turn things around. I hope they do! But I’ll only be watching from the sidelines.