The month of December had a mixed reaction. In the first half of the month, the Bank of Canada announced another 50 basis point interest rate cut in line with expectations. At 3.25%, this interest rate brought some relief to borrowers. However, the TSX Composite Index descended after the rate cut news, falling 4.3% in a week. Telecom and real estate stocks took the biggest plunge for a good reason.
The November inflation rate slowed to 1.9%, influenced by the Black Friday sale. The accelerated rate cuts that began in June 2024 to control inflation are likely to slow in 2025 as central banks fear a rise in inflation. Why do they fear higher inflation?
- U.S. President-elect Donald Trump has threatened to impose a 25% tariff on imports from Canada and Mexico. If these tariffs are implemented, the price of goods could increase as the tariff cost will be passed on to consumers.
- Meanwhile, Canada’s policymakers are cutting immigration targets by roughly 20% over the next three years, which means a lower labour supply. While a lower population could ease pressure on housing, it will increase wages and inflation.
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Highest-Yielding Stocks on the TSX Right Now
The uncertainty caused by the above two events pulled down the stock market in December, creating a buying opportunity in the below stocks.
BCE stock
BCE (TSX: BCE) stock fell 11.3% in December, inflating its dividend yield to 11.8%. The telecom giant has been in a downtrend since the April 2022 interest rate hike, losing half of its value. The telecom sector is in an upheaval as the acquisition of Shaw Communication by Rogers Communication changed the market oligopoly. This transition created an opportunity for Telus and BCE to poach Shaw’s customers, forcing them into a price war at the cost of their profit margins.
BCE is now in the middle of a company-wide restructuring. It is selling or closing its low-margin businesses like radio and electronic stores. It is expanding its reach in fast-growing digital media, cloud, networking, and cyber security businesses. This involves massive job cuts, write-offs, acquisitions, and other one-off expenses, pushing the telco into losses. Losses and high financing costs have stressed its free cash flow, hurting its dividend-paying flexibility in the short term. Its payout ratio is estimated to have increased from 111% in 2023 to 130% in 2024.
BCE has paused dividend growth in 2025 as it repairs its finances and strengthens the balance sheet. This is an opportunity to buy the dip as the company could see a recovery in revenue and profits once it realizes the synergies of restructuring. In the worst-case scenario, the company might cut dividends for a year or two. However, history has shown that BCE made a comeback with accelerated dividend growth to compensate for dividend cuts.
| Year | BCE’s annual dividend per share | YoY change |
| 2009 | $1.58 | 116.4% |
| 2008 | $0.73 | -48.8% |
| 2007 | $1.43 | 8% |
| 2006 | $1.32 | 2.3% |
| 2005 | $1.29 | 7.5% |
| 2004 | $1.20 | 0.00% |
| 2003 | $1.20 | 0.00% |
| 2002 | $1.20 | 0.00% |
| 2001 | $1.20 | -6.3% |
| 2000 | $1.28 | -5.9% |
An 11.8% yield can compensate for two to three years of dividend growth pause.
Timbercreek Financial
Timbercreek Financial (TSX: TF) stock fell more than 7.5% in December, inflating its dividend yield to 10%. The short-term mortgage lender that lends to income-generating REITs has been in a downward trend since April 2022 when interest rate hikes began as Canada’s real estate sector saw a correction. Its loan turnover reduced as REITs paused their development projects until borrowing became cheaper and demand for housing picked up. REITs even repaid their loans to control interest costs.
This reduced Timbercreek’s revenue and profits and increased its dividend payout ratio to an alarming 95.3% of its adjusted distributable income. The recovery in demand for loans was slow to pick up in the second half as REITs waited for more interest rate cuts. A slowdown in rate cuts could probably revive Timbercreek’s loan turnover, allowing the lender to sustain its dividends. You could benefit from a 10–15% recovery rally and a 9.89% yield.
In the worst-case scenario, delays in the recovery of loan turnover could force the lender to cut dividends and further reduce the stock price. Consider investing only a small portion of your portfolio in this stock.
