The Bank of Canada (BoC) lowered its benchmark interest rate by 0.25% on Wednesday, bringing it down to 2.5%. This move reflects a cautious approach as recent economic indicators — including a second-quarter contraction and a weakening job market — point to broader economic softness. According to Reuters, economists expect at least one more rate cut of the same size, potentially arriving in October or December.
For income-focused investors, this shift carries major implications. As returns on fixed-income products like guaranteed investment certificates (GICs) decline, capital often shifts toward higher-yielding equities. Meanwhile, lower interest rates can ease the financial burden on debt-heavy businesses, improving their balance sheets and profitability.
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Here are two income-generating stocks well-positioned to benefit from this rate environment:
Northland Power (TSX:NPI)
As a Canadian renewable energy producer, Northland Power operates in a capital-intensive sector — making it particularly sensitive to interest rate changes. The company holds approximately $7 billion in debt, with a debt-to-equity ratio of 1.7 and a debt-to-asset ratio of 51%. While these figures remain within a manageable range, the company’s low interest coverage ratio of 1.2 highlights the benefits it could gain from cheaper borrowing.
Northland is currently in an aggressive expansion phase, with major international projects underway, including:
- A 30.6% interest in the 1,022 MW Hai Long offshore wind project (Taiwan)
- A 49% stake in the up to 1,140 MW Baltic Power project (Poland)
- An 80 MW battery energy storage facility (Alberta)
These initiatives are expected to come online between 2026 and 2027, potentially driving significant cash flow growth.
In the meantime, investors are rewarded with a strong 5.4% dividend yield — considerably higher than the 2.8% yield from a two-year GIC. Analysts also see upside in the stock, forecasting a possible 25% increase in share price over the next year.
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TELUS (TSX:T)
Among Canada’s Big Three telecom players, TELUS has shown notable performance since the BoC began cutting rates in June 2024. Like many in the sector, TELUS has high capital spending needs and substantial debt, making it highly responsive to changes in borrowing costs.
As of Q2, the company reported a debt-to-equity ratio of 2.2 and a debt-to-asset ratio of 55%, with a trailing 12-month interest coverage ratio of 1.7. Though typical for telecom companies, these numbers indicate TELUS could benefit meaningfully from refinancing debt at lower rates.
Currently trading below $22 per share, TELUS offers an attractive 7.6% dividend yield. With reliable cash flow, a defensive business model, and the potential for lower financing costs, TELUS stands out as a strong candidate for income-focused investors aiming to outpace inflation.
StockKey’s Takeaway:
The BoC’s latest interest rate cut is a clear signal for investors to look beyond fixed income and toward dividend-paying equities. As GIC yields lose appeal, companies like Northland Power and TELUS — which offer stable income and potential upside — are poised to attract greater investor attention.
In a declining rate environment, income investing isn’t just about dividends — it’s also about identifying the right businesses at the right moment.
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