Algonquin Power & Utilities (TSX:AQN) remains a high-risk investment despite its recent strategic pivot to become a pure-play utility company. With shares down 70% from record levels, investors should approach this troubled utility with extreme caution.
AQN’s financial distress is evident in its forced dividend cuts in the past two years, driven by higher interest rates, declining cash flows, and increasing interest payments. The ongoing drawdown has increased AQN’s dividend yield to 5.3%. However, investors should note that the TSX stock lowered its annual dividends from $0.72 per share in 2022 to $0.43 per share in 2023 and to $0.26 per share in 2024.
The bear case for the TSX stock
Algonquin Power & Utilities recently sold its renewable energy business for US$2.5 billion (resulting in approximately US$2.1 billion in net proceeds after taxes and adjustments). A significant portion of the proceeds will be used to lower balance sheet debt, which currently stands at more than $6.2 billion.
AQN’s operational challenges are equally concerning. The recent earnings call revealed that Algonquin is significantly underperforming in its core utility operations. Despite being authorized to achieve a 9.2% return on equity (ROE), its actual earned ROE falls “several 100 basis points below that allowable target,” according to interim chief executive officer (CEO) Chris Huskilson.
Regulatory issues further compound these problems. The Missouri Commission has launched an investigation into customer service and billing problems following a troubled IT platform implementation. Additionally, Algonquin was forced to restart its Empire Electric Missouri rate case, delaying resolution until 2026 rather than late 2025, as previously expected.
While incoming CEO Rod West promises a performance acceleration plan within 90 days, the simultaneous departure of chief financial officer Darren Myers creates additional leadership uncertainty. With a sizeable debt pile, persistent regulatory lag, and operational inefficiencies, Algonquin faces a challenging path to financial stability, making it a high-risk proposition for investors seeking utility exposure.
Here’s another TSX dividend stock you can buy instead of AQN right now. Let’s see why.
Is the TSX dividend stock a good buy?
Unlike AQN, Headwater Exploration (TSX:HWX) represents a compelling investment opportunity in the Canadian energy sector. Today, Headwater offers investors a unique combination of growth, stability, and shareholder returns that sets it apart from peers.
Headwater has delivered exceptional organic growth, expanding production from just 7,393 barrels of oil equivalent per day (boe/d) in 2021 to an estimated 22,250 boe/day in 2025—nearly tripling output in four years.
This growth has been achieved entirely with organic cash flows, demonstrating management’s capital discipline and operational efficiency. Over the past three years, Headwater has grown its resource base substantially, with approximately 58% compound annual growth in inventory and original oil in place.
With a maintenance capital reinvestment rate of less than 40% at US$70 West Texas Intermediate, Headwater maintains one of the most capital-efficient operations in the sector. This low reinvestment requirement allows the company to generate substantial free cash flow while enabling 10% annual production growth.
Headwater has consistently returned capital to shareholders, recently increasing its quarterly dividend by 10% to $0.11 per share, indicating a forward yield of over 7%. Since implementing its inaugural dividend in late 2022, the company has returned $189 million to shareholders.
With over 800 sections of land and a growing inventory of drilling locations that has doubled in the past two years, Headwater has significant untapped exploration potential. It continues to add prospective acreage, acquiring 157 sections of Clearwater lands in 2024 alone, providing a long runway for future growth.
