Contrarian investors are searching for undervalued dividend stocks to add to their self-directed Registered Retirement Savings Plan (RRSP) portfolio focused on dividend income and total returns.
Algonquin Power
Algonquin Power (TSX: AQN) is up more than 40% in the past 12 months. More gains could be on the way.
Algonquin Power ran into trouble when the Bank of Canada and the U.S. Federal Reserve aggressively raised interest rates in 2022 and 2023 to get inflation under control. With too much debt on the balance sheet and weaker revenues coming in from non-rate-regulated assets, the company was forced to abandon its planned acquisition of Kentucky Power and then cut its dividend as the focus shifted to monetizing non-core assets in a bid to shore up the finances.
Investors punished the company for getting caught out by the rate hikes. Algonquin Power’s share price slid from $15 in August 2022 to $6 in late 2023. The stock remained under pressure through most of 2024.
The turnaround in early 2025 began when Algonquin Power completed the sale of its renewable energy assets for about $2.5 billion. Management’s new strategy is to build Algonquin Power as a pure-play regulated utility. The company has attractive utility assets that offer opportunities to drive strong growth and improve return on equity.
Positive outlook
In June, Algonquin Power provided investors with guidance through 2027. The earned return on equity is expected to improve from 5.5% to 8.5% over the next two years. Operating expenses as a percentage of revenue are targeted to drop by 5% to 7%. Adjusted net earnings per share are expected to rise from around $0.32 in 2025 to $0.42 to $0.46 in 2027.
Good progress has already been made. Adjusted net earnings per share rose 12% through the first nine months of 2025 compared to the same period last year. As EPS and ROE rise, the stock should drift higher. In addition, the market could start to give the stock a multiple that is more in line with other pure-play utilities.
Investors who buy AQN stock at the current price near $8.80 can get a dividend yield of 4%. If management delivers on guidance, it wouldn’t be a surprise to see the stock take a run at $15 over the next 18 to 24 months.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) trades near $44 per share at the time of writing. The stock was as high as $55 in 2024 when oil prices sat around US$80 per barrel. West Texas Intermediate (WTI) currently sells for less than US$60 per barrel. This is largely the reason many oil producers have seen their share prices face headwinds.
Despite the lower margins, CNRL managed to deliver higher adjusted net earnings through the first nine months of 2025, driven by strong production growth coming from acquisitions and successful drilling activity. The company is best-known for its oilsands operations, but CNRL also has conventional heavy and conventional light oil, offshore oil, and natural gas assets.
Near-term volatility in the Canadian energy market is expected as investors evaluate potential risks from a rebound in production in Venezuela. The country’s oil is similar to oil produced in Canada that is currently sent to American refineries. That being said, the feared impact on CNRL is likely overblown and the new concerns could be the push the Canadian government needs to get a new pipeline approved and built to enable Canadian oil producers to sell more of their product to global buyers.
CNRL raised its dividend in each of the past 25 years. Investors who buy CNQ stock at the current level can get a dividend yield of 5.3%. Patience is required, but you get paid well to wait.
The bottom line
Algonquin Power and Canadian Natural Resources are contrarian picks that could deliver decent returns over the medium term for buy-and-hold dividend investors. If you have some cash to put to work, these stocks deserve to be on your radar.
