After the Fall: Is Algonquin Stock Finally a Buy Again?

Algonquin Power & Utilities (TSX:AQN) stock finally looks to be a buy for those seeking solid dividend growth over time.

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It’s been a rough past year for renewable energy firm Algonquin Power & Utilities (TSX:AQN). The name used to be a stellar dividend-growth stock until it was forced to reduce its payout following one of the worst periods of performance in the stock’s history. Undoubtedly, things got ugly really fast and those who stuck by the name have been punished quite severely, as shares collapsed from the high teens to below $9 per share.

Today, Algonquin stock is going for just shy of $12 per share. That’s off around 48% from its all-time high. Despite the bleak roadmap, I still think there’s considerable upside to be had in the fallen renewable energy powerhouse. Yes, there were mistakes made, and there’s a bit of baggage that you’ll need to help carry. Despite the dividend cut, the new dividend looks quite secure. It yields a solid 5.03%. For new investors, that’s not a bad deal at all.

Algonquin stock: A new valuation with a still-attractive dividend

For those who held on all the way down, though, I still think shares are worth hanging onto. It’s too late to get out. I think shares could remain constructive from here, even with the recession looming.

The company is fresh off a decent fourth-quarter round of earnings results. The firm reiterated its guidance for 2023. The firm always has the financial wiggle room to go bargain hunting. For now, all eyes are on the US$2.6 billion Kentucky Power deal. At this juncture, there may be too many regulatory hurdles for the deal to go through. At least, that’s what analysts seem to think.

Whether or not Algonquin gets its way, I think it has many paths forward from here. That alone should have value investors content with punching their ticket at these levels.

With a 0.27 beta, Algonquin stock is likely to be less correlated to the broad TSX Index from here. Though it’s unclear how Algonquin will power a full recovery, I think 14.62 times forward price to earnings (P/E) is a low price to pay for a firm that has a lot to prove.

Simply put, I would not want to bet against Algonquin Power & Utilities, as it looks to stage some sort of comeback from its multi-year period of underperformance.

The Foolish bottom line

Algonquin Power has faced the perfect storm of headwinds and downgrades from various analysts. With modest expectations and so much distaste for the firm, I think there’s an opportunity for contrarians to improve their overall risk/reward scenario with the name while it’s trading in the low teens.

Dividend cuts are never easy, especially large ones (Algonquin slashed its dividend by a whopping 40% a few months ago). But just because Algonquin has a history of reducing its payout does not mean it will continue to do so at the first signs of pressure. If anything, Algonquin may be in a spot to increase its dividend at an impressive rate from here, as it looks to get operations and growth on the right track.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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