Markets entered 2026 expecting further rate cuts, but with soaring oil prices putting upward pressure on inflation, additional rate reductions are unlikely in the coming months. In this scenario, dividend investors are now wondering which TSX stocks are still good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on income and total returns.
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Interest rates outlook
The Bank of Canada is watching two forces in the current environment that will determine the next move on interest rates.
The surge in oil prices is already driving up fuel costs, but it could lead to a broader rise in prices across the economy if the situation continues for several months. Higher transportation costs make it more expensive to move products from manufacturers to retailers. At the same time, oil is also used to make plastic, which means packaging costs will also increase. If the economy holds up while prices are rising, the Bank of Canada will likely be forced to raise interest rates.
The headwind to rate hikes would be an economic downturn. Lower interest rates are normally used to give the economy a boost when consumers start to close their wallets and businesses cut back on investments. If inflation doesn’t get out of hand while the economy slows, a rate cut could still be on the way.
As such, the Bank of Canada intends to stay put until there is more clarity.
In this environment, it makes sense to consider dividend stocks that will probably continue to boost their distributions, regardless of the direction of the next rate change by the Bank of Canada.
Fortis
Fortis (TSX: FTS) raised its dividend in each of the past 52 years. That’s a big reason the stock has always recovered after a pullback.
The company gets nearly all of its revenue from rate-regulated utility businesses. This means cash flow tends to be steady throughout the economic cycle.
Fortis is working on a capital program of close to $29 billion that will boost the rate base by an annual rate of about 7% over five years. As the new assets are completed and go into service, the increase in revenue and earnings should support planned annual dividend hikes of 4% to 6% through 2030.
Enbridge
Enbridge (TSX: ENB) should benefit from a jump in global demand for Canadian and American oil and natural gas as countries search for stable supplies.
Rapid growth in AI data centres also bodes well for Enbridge. The company is building solar and wind power projects to supply electricity to these new facilities that are also pulling power from new gas-fired power plants.
Enbridge has $40 billion in capital projects on the go, spread across its four core business groups that include oil pipelines, natural gas storage and transmission, natural gas utilities, and renewable energy. Investors who buy ENB stock at the current level can get a dividend yield of 5.1%. The energy infrastructure giant raised its dividend in each of the past 32 years.
The bottom line
Rate hikes will put pressure on Fortis and Enbridge, just as they did through 2022 and 2023, so investors should brace for some volatility in the share prices. That being said, the dividends should continue to increase, and pullbacks would be an opportunity to add to the position.
