If I’d Invested $1,000 in AQN Stock at the Start of 2022, Here’s What I’d Have Now

The stock market has sent investors into a tizzy this year. As global economies continue to grapple with a wide range of macroeconomic challenges ranging from geopolitical tensions, interest rate hikes, red-hot inflation, and falling consumer demand, investors are looking at recession-resistant assets to park their funds. 

Right now, rising bond yields make fixed-income assets an enticing bet. But historically, this asset class has grossly underperformed equities in the last four decades. Alternatively, the ongoing selloff has driven dividend yields of several TSX stocks higher in 2022. 

For example, shares of Algonquin Power & Utilities (TSX: AQN) offer investors a generous dividend yield of 6.34%. AQN stock is down 13% year to date, so if you’d invested $1,000 in the company at the start of 2022, it would be worth around $870 right now. 

Algonquin Power has managed to limit its downside, as major indices south of the border, such as the S&P 500 and Nasdaq Composite, are down 20% and 30% below all-time highs, respectively. 

Despite the recent pullback, AQN stock has returned 274% in dividend-adjusted gains to investors in the last 10 years. 

Let’s see if the Canadian dividend stock can continue to outpace the markets in the upcoming decade. 

Is Algonquin Power & Utilities stock a buy?

A diversified Canadian utility company, Algonquin has two primary business segments. Its regulated services include electric water distribution, natural gas, and wastewater collection utilities in Canada, the U.S., Chile, and Bermuda.

Further, the renewable energy business operates thermal and other clean energy assets in North America. In 2021, regulated services accounted for 88% of sales and 94% of operating income for Algonquin. 

The company’s regulated business allows Algonquin to generate steady cash flows across market cycles and pay attractive dividends to shareholders. In the last 10 years, these dividend payments have increased at an annual rate of 12.3%. Despite a sluggish macro environment, AQN raised dividends by 6% in the first quarter of 2022. 

What’s next for AQN stock and investors?

Algonquin’s stellar track record of dividend growth, predictable cash flows from its diversified operations, and expanding renewable business make it a top bet in 2022. It aims to deploy $12.4 billion via capital expenditures through 2026, which should fuel earnings growth in the next five years. 

Algonquin has sold close to 82% of its output under long-term contracts, and its assets have a production-weighted average remaining contract life of 12 years. The company is focused on driving its cost base lower through multiple conversion opportunities.

It has brought down operations its maintenance efficiency ratio, which is its operating cost as a percentage of sales. This ratio has fallen to 42% in 2021 from 66% in 2012 and is forecast to touch 35% by 2026. 

Investing $1,000 in AQN stock back in October 2012 would have allowed you to purchase 148 shares of the company. Given its dividend payment 10 years back, annual payouts would amount to $47 annually, indicating a yield of 4.7%. If you held on to those shares today, annual dividend payments would be close to $148 per year, increasing your yield to 14.8%.