As Interest Rates Fall, These TSX Sectors Are Ready to Outperform in 2025

Investors can expect solid returns by investing in these two TSX sectors amid falling interest rates in 2025.

| More on:
stocks climbing green bull market

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With interest rates on the decline, some TSX sectors are getting ready to shine in 2025 — and banking and retail could be at the top of the list. Lower borrowing costs mean banks could see a surge in loan activity and better credit quality, while retailers are likely to benefit as consumers feel more confident and spend more. For long-term investors, this market environment could be a great opportunity to focus on high-quality stocks within these two sectors.

In this article, I’ll dive into one top TSX stock from the banking sector and one from the retail sector, showing you why they could be big winners in 2025.

Bank of Nova Scotia stock

From the banking sector, Bank of Nova Scotia (TSX:BNS), or Scotiabank, is my top choice for long-term investors in 2025. After rallying by 21.3% over the last year, BNS stock trades at $76.93 per share and offers a 5.5% annualized dividend yield. With a market cap of $95.8 billion, it’s currently the fourth-largest Canadian bank.

In its fiscal year 2024 (ended in October), Scotiabank posted a 4.2% YoY (year-over-year) increase in its total revenue to $33.7 billion as it achieved notable gains in net income, climbing to $7.9 billion from $7.5 billion the previous fiscal year. Its adjusted net income for the year, which excludes certain one-time charges, was even higher at $8.63 billion, reflecting a 3.2% YoY rise.

Scotiabank’s Canadian banking segment saw adjusted yearly earnings rise by 7% YoY with the help of double-digit growth in net interest income and careful expense control. Meanwhile, its international banking operations delivered an impressive 11% YoY adjusted earnings growth, propelled by margin expansion and productivity initiatives in key markets like Mexico, Peru, and Chile.

Going forward, falling interest rates could act as a major tailwind for Scotiabank, boosting loan volumes across its Canadian and international markets. In addition, the Canadian lending giant’s continued focus on digital transformation and operational efficiency could further boost its profitability and competitive edge, making it a top TSX stock to consider from the banking sector.

Created with Highcharts 11.4.3Bank Of Nova Scotia PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

Dollarama stock

From the retail sector, Dollarama (TSX:DOL) could arguably be one of the safest bets in 2025. This is because this Toronto-based company operates in the value retail space, which tends to perform well in both strong and uncertain economic conditions.

After rallying by 47.4% in the last year, DOL stock currently trades at $139.02 per share with a market cap of $38.7 billion. While its annualized dividend yield is currently less than 1%, it still maintains a strong track record of raising dividends each year.

In the quarter ended in October 2024, Dollarama posted a 5.7% YoY increase in its sales to $1.6 billion as its comparable store sales rose 3.3%. Its adjusted quarterly earnings also climbed by 6.5% YoY to $0.98 per share.

In its latest earnings report, the Canadian value retailer highlighted cautious consumer spending but reaffirmed the resilience of its business model, driven by steady demand for consumables and value-priced goods. As the consumer spending environment improves with declining interest rates, Dollarama could benefit from even higher demand for its products.

Should you invest $1,000 in Cineplex right now?

Before you buy stock in Cineplex, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Cineplex wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jitendra Parashar has positions in Dollarama. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

analyze data
Dividend Stocks

How I’d Invest $28,000 in Canadian Natural Resource Stock to Amass Personal Wealth

Investing in TSX dividend stocks such as Enbridge can help you earn a passive-income stream in 2025.

Read more »

hand stacks coins
Dividend Stocks

Got $400? How I’d Start Building Income With 3 High-Yield Stocks for the Long Term

These high-yield dividend stocks have a solid payout history, making them compelling investments to generate passive income.

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

I’d Put $15,000 in These 3 Dividend-Growth Champions for Increasing Income Potential

Want to offset some volatility? Here are three defensive dividend-growth champions that can generate a juicy yield right now.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $7,000

Discover how the Tax-Free Savings Account can be your golden goose for generating cash without losing your investment.

Read more »

monthly desk calendar
Dividend Stocks

How I’d Invest $10,000 in Canadian Value Stocks for Monthly Dividend Income

A $10,000-diversified portfolio of value stocks focusing on dividend safety, yield, growth, and payment schedules can provide a reliable source…

Read more »

a person watches a downward arrow crash through the floor
Dividend Stocks

Is This Correction Your Chance? Top 4 Canadian Dividend Stocks on Sale

Stocks may be down, but now is your chance to get some of these top dividend stocks on sale.

Read more »

Confused person shrugging
Dividend Stocks

Where to Invest $2,500 in the TSX Today

These TSX stocks offer attractive dividends and a shot at decent upside on a rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $25,000 in These Dividend Stocks for $1,956.66 in Annual Passive Income

Dividends stocks can make a huge difference, even if shares don't move an inch. And these might be the best.

Read more »