Canadian investors should likely pay closer attention to interest rates than they already are. Why? Statistics Canada reported that household credit market debt reached 179.6% of household disposable income in the first quarter of 2026. In other words, Canadians owed almost $1.80 for every after-tax dollar they earned.
You catch that? For ever $1 you earn, you still owe $1.80. Ouch.
That number explains why the Bank of Canada’s latest rate decision matters so much. Lower rates can ease pressure on borrowers, support housing activity, lift investor confidence, and make dividend stocks more attractive. Higher rates can do the opposite.
Yet the Bank of Canada did not cut rates at its June 10 meeting, holding its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. Rate-sensitive stocks often move before the official cut arrives. Banks can benefit if lower rates reduce credit stress and revive borrowing. Utilities can benefit because lower rates make their dividends more attractive and can ease pressure on financing costs. So, two TSX stocks I would watch closely before rates fall further are Royal Bank of Canada (TSX:RY) and Fortis (TSX:FTS).
Governor Tiff Macklem; Source: Bank of Canada
Royal Bank of Canada
Canadian banks have spent the last few years dealing with mortgage renewals, higher debt-service costs, cautious borrowers, and rising credit concerns. The Canada Mortgage and Housing Corporation (CMHC) said mortgage arrears are expected to keep rising moderately across Canada from late 2025 to late 2026, with Toronto and Vancouver among the most exposed markets. That sounds like a reason to avoid banks. But it can also be a reason to buy the strongest one before conditions improve.
RBC stock is Canada’s largest bank by market capitalization and operates across personal and commercial banking, wealth management, insurance, capital markets, and U.S. banking. In the second quarter of 2026, RBC stock reported net income of $5.5 billion, up 25% from the year before. It also reported a common equity tier-one (CET1) ratio of 13.5%, showing a strong capital position.
RBC stock also raised its quarterly dividend to $1.76 per share, an increase of $0.12, or 7%. That brought its yield to 2.4% at writing, while trading at 19 times trailing earnings. It also announced plans to repurchase up to 45 million common shares, subject to approvals.
Altogether, RBC stock looks like the kind of bank that can benefit if Canada moves from rate pressure to rate relief. Investors looking to buy before sentiment improves may want this stock near the top of the list.
Fortis
Utilities often become more attractive when rates fall because their dividends compete against bonds, guaranteed investment certificates, and high-interest savings products. When safe yields fall, a reliable dividend-growth stock can look more appealing.
Fortis stock operates regulated electric and gas utilities across Canada, the United States, and the Caribbean. Its business is not built around consumer confidence or commodity prices, but around essential service. Fortis stock has a $28.8 billion five-year capital plan running from 2026 through 2030. The company expects that plan to grow its midyear rate base from $42.4 billion in 2025 to $57.9 billion by 2030, equal to a 7% compound annual growth rate.
That rate base growth also supports the dividend. Fortis expects dividend growth of 4% to 6% annually through 2030. The company has also increased its dividend for 52 consecutive years, giving it one of the strongest dividend-growth records on the TSX. At writing, it trades at about 21.6 times earnings while providing a 3.1% yield.
What’s more, if rates fall further, Fortis stock could become more attractive to income investors looking for reliability rather than excitement.
Bottom line
Royal Bank and Fortis are very different stocks. RBC stock offers more upside if credit concerns ease, markets recover, and Canadian borrowers regain breathing room. Fortis stock offers steadier dividend growth from regulated utility assets.
The Bank of Canada has not promised investors an easy path. But if lower rates return, these are two TSX stocks that could benefit before the wider market fully prices in the shift.
