Algonquin Energy & Utilities (TSX:AQN) inventory misplaced a number of altitude throughout 2022. From peak to trough, the inventory misplaced greater than half of its worth. This can be a good illustration of how widespread shares can destroy shareholder worth. Nevertheless, to be honest to Algonquin, it wasn’t the one inventory that offered off considerably in 2022.

Larger rates of interest

Rising rates of interest final 12 months was a giant issue within the inventory market selloff. To fight inflation that was rising too quick, the Financial institution of Canada raised the coverage rate of interest swiftly together with different central banks around the globe just like the Federal Reserve in the USA. The inflation in Canada peaked in June 2022 at 9.1% and has headed down since, however, at 5.2% in February, it was nonetheless comparatively excessive versus the Financial institution of Canada’s goal of about 2%. So, the Financial institution of Canada is unlikely to chop rates of interest anytime quickly.

Larger rates of interest elevated the price of capital for companies. Subsequently, this atmosphere is, typically, a drag on enterprise progress.

Moreover, Algonquin has a poorer stability sheet versus bigger utilities. Presently, its S&P credit standing is BBB. Though that is an investment-grade credit standing, traders can simply discover higher-quality utilities with credit score rankings of BBB+ or higher.

The Kentucky Energy acquisition

Some traders didn’t like Algonquin’s pursuit of Kentucky Energy since late October 2021. For instance, Robert Hope, a Scotia Capital analyst with the CFA designation wrote, “[The] investor sentiment is that if Kentucky Energy had been to fall via, Algonquin’s stability sheet can be stronger, which might be supportive of a better valuation.”

What’s worse is that this acquisition has dragged on because the U.S. regulator FERC denied the transaction in mid-December 2022. The longer this takes, the extra assets could also be used on Algonquin’s half.

Dividend minimize

Combining a rising rate of interest state of affairs and the unfavourable investor sentiment on the Kentucky Energy acquisition, the inventory skilled a landslide with the inventory down roughly 45% from September to December 2022. Moreover, traders had been additionally rightly pricing in for a dividend minimize, which lastly got here slashing in in March 2023.

I wish to level out that the inventory hit the underside in late December 2022. By the point the dividend minimize occurred, the inventory had already rallied about 20% from the underside. This goes to indicate that inventory investing is ahead wanting. Yr so far, the inventory has appreciated simply north of 28%, as the worth inventory turned too low-cost to disregard in late December 2022.

AQN information by YCharts

Is it protected to spend money on Algonquin inventory as we speak?

There are higher-quality utility shares that traders can discover. Nevertheless, Algonquin inventory may nonetheless be a good funding over the subsequent 12 months.

Based on the analyst consensus 12-month worth goal, Algonquin inventory trades at a reduction of just about 10%. In different phrases, it has near-term upside potential of roughly 11%. The dividend inventory additionally provides a dividend yield of just about 5.2%. Algonquin’s going ahead payout ratio is estimated to be roughly 70%. So, it ought to be capable to maintain its dividend. In different phrases, it may well doubtlessly ship whole returns of about 16% over the subsequent 12 months.