The Bank of Canada (BoC) slashed interest rates quite a few times this year, and while the pace of further cuts may very well grind to a slowdown from here, I still think investors should be ready for any sort of environment, including one that sees rates continue to tumble further, especially as inflationary pressures continue to ease.
Undoubtedly, the capital-intensive firms stand to benefit a lot from interest rate cuts. And while many pundits would consider the Bank of Canada’s job of rate reductions to be done, at least for the most part, it’s important to note that central banks are likely to be data-driven from here, so that door on rate cuts in the new year isn’t closed off entirely.
Undoubtedly, if the U.S. Federal Reserve slashes rates at a faster pace in 2026, the BoC might have more food for thought. Even if the Fed cuts a bit more aggressively, it’s unclear what would nudge the BoC to move out of its wait-and-see or “pause” stance.
The Bank of Canada is pausing on further rate cuts, at least for now.
Perhaps a drastic weakening of the Canadian economy and a pick-up in layoffs could bring forth even more cuts. For now, it’s unclear, but new Canadian investors should be prepared to hang onto the stocks that can do well if we do move into another round of cuts.
Given the disinflationary longer-term impact of artificial intelligence (AI), I’d argue that further cuts should not be ruled out over the next two to three years.
But which dividend payers are worth checking out here as the BoC looks to digest the wave of rate cuts from the past year while considering its next big move? The heavy spenders (high capex), including the pipelines, like Enbridge (TSX:ENB), stand out as worthy bets, as, too, do the broad basket of REITs, and even the big Canadian banks, many of which are in the midst of the strongest bull market in some years.
Enbridge
The pipelines have been a great place to put money to work in recent years. After a relatively sluggish year, I view Enbridge as a bargain hiding in plain sight now that the dividend yield is closing in on 6%. In the past year, shares of ENB have risen 8%, far less than the TSX Index, which might just close the year with a gain of 30%. Despite the market-trailing performance, though, the dividend heavyweight has a lot to look forward to in the new year.
With a fresh dividend raise and ample new projects for dividend growth investors to get excited about (many are coming into service in 2026, a main catalyst I’ve remarked on in previous pieces), shares of ENB may very well be a gift to pick up before the year concludes. The 0.82 beta also makes for a slightly less correlated ride. And though time will tell what the next big move for the cash cow will be, I do think that adding more rate cuts into the mix, either in 2026 or 2027, could be fuel for another big leg higher.
