Analysts entered 2026 broadly expecting additional rate cuts by the Bank of Canada. Soaring oil prices, however, risk driving up inflation and have forced the central bank to take a wait-and-see approach over the coming months.
With the direction of the next rate move uncertain, dividend investors are wondering which top TSX stocks are still good to buy for a self-directed Tax-Free Savings Account or Registered Retirement Savings Plan (RRSP) portfolio.
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Inflation vs recession
The Bank of Canada is going to be in a difficult position over the course of the coming year. The longer oil prices remain elevated, the more likely it is that prices will start to rise across the broader economy. That would force the central bank to increase interest rates.
At the same time, there is a risk that the spike in fuel costs will hit households and businesses so hard that they stop spending. An economic downturn typically leads to interest rate cuts by the Bank of Canada as it tries to provide support for the economy.
In the worst-case scenario, which is referred to as stagflation, prices will rise even as job losses mount and economic growth stalls.
Where things are actually headed is anyone’s guess in the current market. The big spike in treasury yields in recent weeks, however, suggests the market is worried about inflation and is preparing for rate hikes as the next moves in both Canada and the United States.
With this thought in mind, dividend investors should search for companies that have good track records of delivering dividend growth in all rate conditions.
Enbridge
Enbridge (TSX:ENB) raised its dividend in each of the past 31 years. The streak should continue as the company makes progress on its $40 billion capital program that will see Enbridge expand its asset base across its various business groups. Enbridge expects distributable cash flow to rise by 5% per year over the medium term as new assets are completed and go into service.
Additional projects could get added to the mix. Canada is looking at options to expand pipeline capacity to enable producers to access more global markets. Enbridge could potentially be a partner on any new projects due to its expertise in building and operating large oil pipelines.
Enbridge’s natural gas transmission, infrastructure, and gas utilities should benefit from rising natural gas demand as new gas-fired power generation facilities are built to provide electricity for new AI data centres.
Investors who buy ENB stock at the current level can get a dividend yield of 5.1%.
Fortis
Fortis (TSX:FTS) is another utility stock to consider right now. The company is working on a $28.8 billion capital program that will significantly boost the rate base over the next five years. As a result, management expects the added cash flow will be able to support planned annual dividend increases of 4% to 6% through 2030. Fortis increased the dividend in each of the past 52 years.
The bottom line
Rate hikes would be a headwind for these names, as both Enbridge and Fortis use debt to fund part of their growth plans. That being said, the stocks offer good dividends that should continue to grow, regardless of where rates head next. Pullbacks in the share prices would be opportunities to add to the positions.
