The Bank of Canada is keeping rates on hold, and it looks like it’ll stay that way for the rest of the year and maybe into 2027. As combating sticky inflation and economic sluggishness becomes a difficult task to tackle, questions linger as to what will happen once the U.S. Federal Reserve (the Fed), led by new Fed chair Kevin Warsh, makes a move once it’s finished with its own pause.
Indeed, it feels like the Fed could afford to raise interest rates by one or two times (by 25 bps each time) in the second half, especially given all the talk about combating inflation. In any case, rates are on hold, and they could be for some time, regardless of what the Fed ends up doing.
At the end of the day, the American and Canadian economies are looking quite different in 2026, with considerable strength south of the border and a bit more in the way of uncertainty on Canadian soil. While the Canadian employment picture isn’t in a dire spot, it’s certainly not as robust as the U.S. job market right now. Perhaps it’s best for the Bank of Canada not to test how fragile things are with a rate hike, even though what remains of inflation needs to be dealt with.
Either way, the following dividend giant looks poised to thrive in a climate where the Bank of Canada stays on hold for longer.
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Bank of Montreal
There’s no mystery that the big Canadian banks are where investors will want to be with the Bank of Canada on hold. Bank of Montreal (TSX: BMO) has been a major winner in the past two years, more than doubling to a 128% gain. That’s outstanding for a bank with a U.S. business that’s powering serious growth.
With the U.S. economy as strong as it is, Bank of Montreal naturally stands to benefit on the commercial side. If the Fed were to hike and the Bank of Canada were to keep sitting on its hands, Bank of Montreal stands out as one of the names that could keep standing tall as its many segments on both sides of the border continue to fire on all cylinders.
The only thing that’s a bit questionable about shares of BMO at these levels is the valuation. The stock goes for 19.5 times trailing price-to-earnings (P/E). That’s quite high, and with a yield that’s compressed to 2.7%, there’s certainly a lot to be desired for value-conscious income investors. While I’m not against buying on strength, I do think a pullback could be overdue at some point. And if the chance to lock in a 3% yield comes around again, only then would I look to top up a position.
As for what to look forward to in the second half, I do think that Bank of Montreal’s capital markets business and progress in AI stand out as potential positive drivers that could keep the stock marching even higher. All considered, BMO stands out as a winner that can keep winning as rates stay put.
