Many Canadians are likely relieved that we’ve officially entered a falling-rate environment. Undoubtedly, higher interest rates have been a sore spot for many debt-laden consumers and mortgage holders. Indeed, with elevated household debt levels, many Canadians are sure to cheer even more rate cuts as we move closer to year’s end.
As the Bank of Canada considers its next steps, while the U.S. Federal Reserve (the Fed) south of the border looks to follow a similar, albeit just a tad more hawkish, script regarding rates and the war against inflation, it will be interesting to see how the rate-sensitive securities act.
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Don’t time the rate cuts, folks!
Over the next few months and quarter, new investors should expect nothing short of volatility. Though rates are coming down, we still have no idea how many cuts will be in the books this year, or next year, and where they’ll settle at in five years from now.
Further, we can’t conclusively say that the inflationary days are over with. All it takes is an overly dovish Bank of Canada or Fed and we coud be looking at inflation north of 5% rearing its ugly head again. Indeed, inflation truly is far worse than a temporary period of elevated interest rates.
Though inflation is tame for now, we (and central banks across the world) cannot let our guards down. As to whether sub-1% rates will arrive in the distant future, I have no idea. Regardless, I think only long-term investors should buy stocks to prepare for a low-rate world. At this juncture, it’s just not clear when we’ll see rates we grew used to in the years leading up to 2020.
If you do have a time horizon beyond three or four years, the following stock makes sense to buy ahead of what could be a low-rate world.
The road ahead for the Fed and the Bank of Canada
Though pre-2020 rates are probably off the table for the next three years, I do think that over the much longer term that we could be looking at the possibility of rock-bottom rates again. For businesses, especially those spending considerable amounts on capital expenditures, this would be a welcomed occurrence.
Of course, we must also be prepared for a slow-and-steady move to a new baseline for rates which, I believe, will probably lie somewhere between the 2019 lows and the 2023 highs, perhaps gravitating towards the lows over time.
Rogers stock: A dividend bargain that could gain in a low-rate world
Consider shares of Rogers Communications (TSX: RCI.B), an ailing telecom firm that spends a great deal on infrastructure upgrades. Following the merger with Shaw Communications, Rogers has not only unlocked some cost savings, but they’ve also delivered just a bit more value for customers of both banners. Indeed, it’s not hard to imagine many Canadians feeling uneasy over the increased dominance of the combined entity.
The nation needs more telecom firms to induce greater competition, not less. Either way, the telecom scene has been in a world of pain in recent years. Through the eyes of the telecoms, they need any sort of synergies or cost savings they can get to navigate the rough environment.
Apart from the Shaw-Rogers merger, lower borrowing costs and bundling opportunities may be what allow Rogers to take a bit of share away from telecom rivals. And, of course, Rogers is a greater force with Shaw by its side. I have a feeling more value can be “juiced” from the big merger in the years ahead.
Though nobody wants to see more power in the hands of fewer industry players, I do find that the Rogers-Shaw merger can be a big win for both the consumer and the shareholder. And with lower rates on the way, I find RCI.B stock to be a bargain while it’s still yielding 3.7%.
