The Bank of Canada (BoC) has finally announced the anticipated interest rate hike, raising the rate to 0.50% after the results of their March 2, 2022, policy deliberations. BoC said that it was raising its key rate by a quarter of a percentage point as a part of its strategy to fight inflation rates.
Inflation rates in Canada have hit 5.1%, the highest they have been since 1991, prompting the Canadian central bank to raise the interest rates. I have been discussing how impactful the rate hike could be on your investment portfolio. Now that the rate hike is finally here, we will see bond yields increase, and their prices decline.
When considering its impact on the stock market, you can expect tech stocks and growth stocks to face considerable headwinds under pressure. However, not all TSX stocks will see a decline in their performance on the stock market.
The financial sector boasts several high-quality stocks that could leverage the interest rate hike to their benefit. Today, I will discuss two Canadian dividend stocks that you could consider adding to your portfolio amid the latest development.
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Toronto-Dominion Bank
Toronto-Dominion Bank (TSX: TD)(NYSE: TD) is a reliable Canadian dividend stock and one of the Big Six Canadian banks. The $179.10 billion market capitalization bank headquartered in Toronto was one of the two Canadian financial institutions to announce a rate hike after the announcement from BoC.
TD Bank has a strong balance sheet, and it is focusing on diversifying and scaling up its financial services business. The interest rate hike could improve its profits by a considerable margin, alongside the overall strength in its operational performance. At writing, TD Bank stock trades for $98.30 per share, and it boasts a 3.62% dividend yield.
Royal Bank of Canada
Royal Bank of Canada (TSX: RY)(NYSE: RY) is the largest Canadian bank, boasting a massive $198.17 billion market capitalization. It is another stock that you could consider adding to your investment portfolio amid the interest rate hikes. It was also one of the first banks to increase prime rates after the BoC announced interest rate hikes.
RBC stock trades for $139.04 per share at writing, and it boasts a 3.45% dividend yield. The bank stock has pulled back by 6.78% from its all-time high on January 17, 2022. It could be the right time to buy its shares to leverage the impact of rising interest rates in the stock’s performance on the TSX.
Foolish takeaway
Canadian bank stocks have the kind of track records that make them ideal long-term holdings for Canadian investors. Rising interest rates will shake things up in the stock market further, but financial sector stocks will likely benefit from the move.
Royal Bank of Canada and TD Bank have raised their prime rates from 2.45% to 2.70%, effective March 3, and other banks are likely to follow suit. BoC has said that it will likely need to raise interest rates further to reduce inflation. It might be the right time to pick up shares of these two Canadian bank stocks to take advantage of the rate hikes.
