Traders who missed the large rally final yr are questioning which Canadian shares may nonetheless be undervalued and good to purchase for a self-directed Registered Retirement Financial savings Plan (RRSP) portfolio targeted on dividends and long-term complete returns.
One investing technique for 2026 is perhaps to contemplate corporations which can be working by a method transition whereas making progress on shoring up their steadiness sheets.
Algonquin Energy
Algonquin Energy (TSX:AQN) trades close to $9 per share on the time of writing. The inventory gained 40% up to now 12 months, however continues to be down 60% over the previous 5 years.
The plunge within the share value from $15 in the summertime of 2022 to under $6 in late 2023 occurred in line with the steep leap in rates of interest in Canada and the US. Algonquin Energy had an excessive amount of debt on the steadiness sheet. Because of this, the surge in curiosity bills compelled the corporate to slash the dividend to protect money movement. This upset revenue buyers who had grown accustomed to Algonquin Energy serving up annual beneficiant dividend will increase for years.
Decrease revenues from the renewable vitality belongings added to the ache.
Algonquin Vitality’s new administration workforce is making progress on fixing the mess, and the rebound within the inventory might decide up momentum in 2026. Algonquin Energy deserted its deliberate US$2.6 billion acquisition of Kentucky Energy and has executed a superb job of stabilizing the steadiness sheet by gross sales of non-core belongings, together with its US$2.5 billion divestiture of its renewable vitality enterprise. The corporate is now targeted on being a pure-play utility firm with predictable rate-regulated income streams. Algonquin presently trades at a reduction to friends within the rate-regulated utility phase.
The inventory might additionally drift greater as administration progresses the turnaround effort that’s anticipated to drive return on fairness (ROE) from 5.5% to eight.5% by the top of 2027. Traders who purchase AQN inventory on the present stage can get a dividend yield of 4%.
Telus
Telus (TSX:T) is one other contrarian decide proper now. The inventory trades at $18.50 on the time of writing in comparison with $34 at its peak in 2022.
As with AQN, this inventory took a beating when the Financial institution of Canada aggressively raised rates of interest to battle inflation. Fee cuts in 2024 and 2025, nonetheless, didn’t spur a rally in Telus as they did for different rate-sensitive corporations. Value wars for cellular and web clients put stress on margins in 2024, and Telus needed to take its Telus Digital (Telus Worldwide) subsidiary personal after it suffered a downturn in income.
Telus not too long ago determined to place dividend will increase on maintain. The corporate made some progress on debt discount final yr when it offered a 49.9% stake within the cellular tower enterprise for $1.3 billion. Further funds are anticipated to come back from the monetization of its Telus Well being subsidiary.
Close to-term headwinds are anticipated, however the dividend must be protected so long as Telus is profitable in its purpose of lowering debt whereas defending income streams. Traders who purchase Telus on the present share value can get a dividend yield of 9%.
Financial institution of Nova Scotia
Financial institution of Nova Scotia (TSX:BNS) is additional alongside in its turnaround efforts. For this reason the inventory rallied to a brand new all-time excessive within the second half of final yr. Further upside is feasible, nonetheless, if the Financial institution of Nova Scotia continues to ship rising ROE because it streamlines operations and shifts its development investments extra to the U.S. and Canada and away from Latin America the place it has beforehand made large bets.
Traders can nonetheless get a dividend yield of 4.3% proper now from BNS inventory.
The underside line
Algonquin Energy, Telus, and Financial institution of Nova Scotia are making progress on their turnaround packages. Some turbulence is predicted, however buy-and-hold buyers with a contrarian fashion may wish to put these shares on their radar at present.
