The Bank of Canada just reduced its key interest rate from 2.75% to 2.5%. Investors are now wondering which Canadian stocks should benefit and are good to buy today for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on dividends and long-term total returns.
Interest rate outlook
The Bank of Canada last cut its key interest rate in March. The central bank has since been on hold as it evaluated the impacts of tariffs on prices. Inflation increased in August to 1.9% but is still below the 2% target, giving the Bank of Canada some flexibility to help support the economy.
Unemployment is rising in Canada as businesses take cautionary steps due to uncertainty around trade negotiations with the United States. The longer the uncertainty lasts, the more likely it is that the economy could slip into a recession. The latest rate cut is designed to ease the pain for those with high debt levels while encouraging investment. Additional rate cuts could be on the way.
Companies that use a lot of debt to fund growth will benefit from lower borrowing costs. Dividend stocks with high yields could see demand rise as income investors seek better returns than are offered on Guaranteed Investment Certificates (GICs).
Enbridge
Enbridge (TSX:ENB) is a giant in the North American energy infrastructure and utilities sectors. The company is best known for its extensive oil pipelines that move roughly 30% of the oil produced in Canada and the United States. In recent years, however, Enbridge has expanded its asset portfolio through acquisitions of export terminals and natural gas distribution utilities. The company also bought a developer of solar and wind facilities.
Enbridge grows through the expansion of existing assets, as well. The current capital program backlog sits at $32 billion. Enbridge uses a lot of debt to fund its growth initiatives. Projects can take years to build before they are completed and start generating revenue. The reduction in the key interest rate will lead to an immediate drop in interest expenses on variable-rate loans. Borrowing new funds to replace maturing debt should also get cheaper.
Enbridge trades near $67.50 at the time of writing, compared to $44 in October 2023 when the central banks in Canada and the United States first indicated they were done raising interest rates to fight inflation. The new rate cut could put an additional tailwind behind the stock.
Enbridge raised its dividend in each of the past 30 years. Investors who buy ENB stock at the current level can get a dividend yield of 5.6%.
Telus
Telus (TSX:T) finished the second quarter (Q2) of 2025 with total debt of roughly $33 billion. This is close to its current market capitalization.
Telus uses debt to fund its capital programs that include the expansion and upgrading of its wireline and wireless network infrastructure. These assets, once in place, are very valuable and can generate recurring revenue for decades.
Lower interest rates will reduce interest expenses. This can free up cash to pay down debt and cover dividend distributions. Telus is already monetizing non-core assets to reduce the debt load and has a plan in place to steadily shore up the balance sheet in the next few years.
Investors who buy Telus at the current price can get a dividend yield of 7.6%. The stock trades near $22 compared to $34 in 2022, so there is decent upside potential.
The bottom line
With inflation under control and economic weakness likely on the horizon, the Bank of Canada could make additional rate cuts into 2026. In that scenario, Enbridge and Telus should benefit from reduced debt costs.
