Bank of Canada Cuts Interest Rates to 2.5%: 2 Income Stocks That Stand to Profit

Income-hungry investors can take a closer look at these dividend stocks.

Kay Ng

Kay began investing in dividend stocks around 2008 via the concept of value investing. Since then, she has expanded into growth investing, including in small caps. Her passion for investing has only grown over the years! After graduating from UBC with a BSc in Computer Science, she took university courses in financial markets, finance, and financial accounting. She has contributed her works to Motley Fool, Sure Dividend, and Seeking Alpha.

Published September 19, 2025 9:45 pm EDT

On Wednesday, the Bank of Canada (BoC) cut its benchmark interest rate by 0.25% to 2.5%, marking another step in its cautious stance amid signs of economic weakness. With second-quarter data showing contraction and a softening job market, economists expect at least one more 0.25% cut — potentially in October or December, according to Reuters.

For income-focused investors, this move is a signal. As fixed-income investments like guaranteed investment certificates (GICs) lose their edge, capital tends to flow into higher-yielding equities. And for businesses carrying significant debt, lower interest rates can mean reduced borrowing costs and stronger balance sheets.

Here are two high-yield income stocks that could benefit directly from this shift — and reward investors in the process.

dividend stocks are a good way to earn passive income — Source: Getty Images

Northland Power

As a Canadian renewable energy stock, Northland Power’s (TSX:NPI) capital-intensive model makes it one of the biggest beneficiaries of falling interest rates. The company carries roughly $7 billion in total debt, with a debt-to-equity ratio of 1.7 and a debt-to-asset ratio of 51%. While manageable, its interest coverage ratio of 1.2 times suggests there’s room for improvement — especially as rates decline.

Crucially, Northland is in growth mode. It has major international projects under construction or in development:

A 30.6% stake in the 1,022 MW Hai Long offshore wind project (Taiwan)
A 49% stake in the up to 1,140 MW Baltic Power project (Poland)
An 80 MW battery energy storage system (Alberta)

These projects, scheduled to come online between 2026 and 2027, could dramatically boost cash flow.

In the meantime, investors are compensated for their patience. At around $22 per share, Northland Power offers a solid 5.4% dividend yield, far outpacing the current 2.8% yield on a two-year GIC. Moreover, analyst consensus points to a potential 25% upside in the stock price over the next 12 months.

TELUS

TELUS (TSX:T), one of Canada’s Big Three telecom companies, has quietly been outperforming its peers since the BoC started cutting rates in June 2024. With its high capital expenditures, TELUS is particularly sensitive to interest rate changes.

As of the second quarter, the company had a debt-to-equity ratio of 2.2 and a debt-to-asset ratio of 55%, while its trailing-12-month interest coverage ratio was 1.7. While not unusual in the telecom space, these numbers suggest the company should benefit from cheaper refinancing and borrowing costs going forward.

At under $22 per share at writing, TELUS offers a mouth-watering 7.6% dividend yield, making it a compelling option for income-hungry investors looking to beat inflation and GIC rates. With a stable business model, consistent cash flow, and lower interest rates, TELUS could be a cornerstone in an income portfolio.

Investor takeaway

The BoC’s latest rate cut is a clear nudge toward equities, especially those offering reliable income. As fixed-income instruments continue to lose appeal, stocks like Northland Power and TELUS stand to gain not only from improved financial conditions but also from increased investor interest.

In a falling rate environment, income investing isn’t just about collecting dividends — it’s about capturing upside in the right companies at the right time.