Roger S. Conrad

Is the US economy slowing enough to enter recession this year? And if it is, how well are the companies we own prepared for what’s to come?

Algonquin Power & Utilities (TSX: AQN, NYSE: AQN) has re-set its common stock dividend and will try again to win Federal Energy Regulatory Commission approval for the acquisition of Kentucky Power from American Electric Power (NYSE: AEP).

2022 was the worst year for the stock market since 2008. And bonds suffered their biggest losses since the 1980s. Nonetheless, for the third year in a row, the Dow Jones Utility Average launched a powerful Q4 rally, finishing with a 2.08 percent total return. And that in turn helped carry our Aggressive Holdings ahead 3.5 percent, Conservative Holdings 1.3 percent and Top 10 DRIPs 9.5 percent.

Every January feature article highlights the top picks and pans by sector for the coming year, as well as the past 12-month’s best and worst performers.

Algonquin Power & Utilities (TSX: AQN, NYSE: AQN) will update strategy on January 12 with an “Investor Update Call.” One potential course of action: The sale of its 42.49 percent interest in Aggressive Holding Atlantica Yield (NSDQ: AY). Expectations were high when Algonquin purchased ownership in the yieldco from its initial parent, bankrupt Spanish engineering firm Abengoa SA. And while the pace of drop downs to fuel growth has been tepid, the association has been positive for both sides—Atlantica’s dividend is now 6 percent higher than in December 2015, when it suspended its payout to deal with Abengoa’s cross-defaults.

Investors hate uncertainty. So it’s understandable that Dominion Energy (NYSE: D) shares sold off in early November, when the company replaced its CFO and announced a “top to bottom” strategic review. CEO Bob Blue stated the company would pursue “value-maximizing” actions, including “alternatives to our current business mix and capital allocation.” Dominion shares, however, now arguably price in the opposite: A cut in 6 percent annual earnings and dividend growth guidance to low single digits or worse.

Exactly half of our portfolio stocks posted positive total returns in 2022 and half negative. That matches up pretty well with the mostly neutral returns posted by our Aggressive Holdings (up 3.5 percent), Conservative Holdings (up 1.3 percent) and Top 10 DRIPs (up 9.5 percent). It’s also right there with the Dow Jones Utility Average’s 2.08 percent total return for the year. But the overall numbers do mask some pretty massive divergence among individual holdings. The biggest is the 156.5 percentage point difference in performance between our best stock Constellation Energy (NYSE: CEG) and our worst Algonquin Power & Utilities (TSX: AQN, NYSE: AQN).

We won’t have to wait long to hear Algonquin Power & Utilities’ (TSX: AQN, NYSE: AQN) plan for its dividend this year. The company’s Investor Call on January 12 will likely include revised guidance along with plans to corral debt and the Kentucky Power acquisition from American Electric Power (NYSE: AEP)—now blocked by the Federal Energy Regulatory Commission. Shares are pricing in a dividend cut of at least one-third. What management decides will likely depend on how fast it wants to reduce roughly $3.4 billion in variable rate debt, and whether it walks away from Kentucky Power.