One investment strategy for 2026 could be to consider companies that are undergoing a strategy transition while making progress in strengthening their balance sheets.
Algonquin power
Algonquin power (TSX:AQN) is trading near $9 per share at the time of writing. The stock is up 40% in the past twelve months, but is still down 60% over the past five years.
The share price drop from $15 in the summer of 2022 to less than $6 at the end of 2023 occurred in line with the steep rise in interest rates in Canada and the United States. Algonquin Power had too much debt on its balance sheet. As a result, the increase in interest expenses forced the company to cut its dividend to maintain cash flow. This upset income investors who had grown accustomed to Algonquin Power providing generous annual dividend increases for years.
Lower revenues from renewables exacerbated the pain.
Algonquin Energy’s new management team is making progress in fixing the mess, and the stock’s recovery could gain momentum in 2026. Algonquin Power has abandoned its planned $2.6 billion acquisition of Kentucky Power and has done a good job stabilizing its balance sheet through the sale of non-core assets, including the divestiture of its $2.5 billion renewable energy business. The company is now focused on being a pure utility company with predictable, rate-regulated revenue streams. Algonquin currently trades at a discount to peers in the rate-regulated utility segment.
The stock could also rise as management makes progress on the turnaround that is expected to increase return on equity (ROE) from 5.5% to 8.5% by the end of 2027. Investors who buy AQN shares at current levels can get a 4% dividend yield.
Telus
Telus (TSX:T) is another contrarian pick right now. The stock is trading at $18.50 at the time of writing, compared to $34 at its 2022 peak.
Like AQN, this stock took a hit when the Bank of Canada aggressively raised rates to combat inflation. However, rate cuts in 2024 and 2025 did not spark a rally in Telus as was the case with other interest rate-sensitive companies. Price wars for mobile and internet customers put pressure on margins in 2024, and Telus had to take its subsidiary Telus Digital (Telus International) private after sales fell.
Telus recently decided to suspend dividend increases. The company made some progress in reducing debt last year when it sold a 49.9% stake in its mobile tower business for $1.3 billion. Additional resources are expected to come from monetization of its subsidiary Telus Health.
Headwinds are expected in the near term, but the dividend should be safe as long as Telus is successful in its goal of reducing debt while protecting revenue streams. Investors who buy Telus at the current share price can get a dividend yield of 9%.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is further along in its recovery efforts. This is why the stock rose to a new all-time high in the second half of last year. However, there is still more upside potential if the Bank of Nova Scotia continues to deliver rising ROE while streamlining its operations and shifting its growth investments more toward the U.S. and Canada and away from Latin America, where it has previously made big bets.
Investors can still get a 4.3% dividend yield from BNS stock right now.
The bottom line
Algonquin Power, Telus and Bank of Nova Scotia are making progress on their turnaround programs. Some turbulence is expected, but buy-and-hold investors with a contrarian style might want to put these stocks on their radar today.
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