This year, the Bank of Canada has been raising interest rates. If you have a variable interest rate mortgage, you’re probably feeling the effects of the hikes already. The higher interest rates go, the more expensive items bought on credit become. High interest rates can also sometimes suppress stock market returns – though we haven’t been seeing that so much this year. With that in mind, here are five safe stocks that may be worth buying in a rising-rate market.
The Canadian National Railway (TSX:CNR) is Canada’s biggest railroad. It ships $250 billion worth of goods across North America each year. The transcontinental railway has only one competitor in Canada, and only a small handful in the U.S., which gives it pricing power. High interest rates do not seem to be negatively affecting CNR’s business this year. The company grew its revenue by 17% and earnings by 38% in its most recent quarter. CNR does have a lot of debt, which can be problematic in rising rate environments, but so far things appear to be going smoothly.
Fortis Inc (TSX:FTS) is a Canadian utility stock. It has about a 4% dividend yield and raised its dividend every single year for the last 49 years. Management aims for 6% annual dividend increases going forward. In 2022, many utilities struggled because of high interest rates, but Fortis actually managed to grow its earnings slightly. Utilities aren’t companies that exactly ‘benefit’ from rising rates, but well-run utilities like Fortis aren’t harmed by them too much.
Royal Bank of Canada
The Royal Bank of Canada (TSX:RY) is one stock that arguably benefits from rising interest rates. Banks charge interest on loans that is influenced by the Bank of Canada’s policy rate. The higher interest rates go, the more money banks can charge, leading to higher net interest income. I do not mean to say that high interest rates are always good for banks. Rate hikes cause the value of banks’ treasury holdings to decline, a factor that contributed to several U.S. banks failing this year. However, RY is governed by much stricter regulations than U.S. banks are, and is very well capitalized.
Alimentation Couche-Tard (TSX:ATD) is a Canadian gas station company. It started out as ‘Couche Tard’ in Quebec, and later entered the rest of Canada by buying out Circle K, a U.S. gas station chain. It expanded the chain all across Canada. Today, Circle K has thousands of stores across Canada, the U.S., and Europe. The company is known for good financial discipline, growing organically rather than taking on large amounts of debt or selling equity to do deals. In a rising rate environment, this is an important advantage.
The Toronto-Dominion Bank (TSX:TD) is another bank stock with a high dividend yield. Much like Royal Bank of Canada, TD has the potential to make money off interest rate hikes if everything goes smoothly. The company invested heavily in expansion this year, buying out the U.S. investment bank Cowen. Its deal to buy out First Horizon was cancelled. I consider that a good thing because TD offered too high a price for that bank. TD is a well-run bank whose shares have a very high dividend yield. I’d say most people owning this stock will do pretty well.