The Bank of Canada cut its key interest rate on Wednesday morning by a quarter of a percentage point, marking the first turn in monetary policy in more than two years.
Dividend-paying stocks have been struggling over the past two years as rising interest rates attracted investors to other income-generating investments, such as bonds and guaranteed investment certificates .It lags the total return of the broader S&P/TSX Composite Index by 13 percentage points. These returns include dividends.
Rising yields, largely a consequence of falling share prices, tell a similar story about the recent performance of dividend stocks, especially in Canada. The strategists, who declared 2024 as a “banner year” for dividend stocks, added that trillions of dollars are parked in U.S. retiree accounts, in the form of cash. As interest rates decline, the returns on this cash will diminish, providing a powerful incentive for investors to pursue other investments – notably, dividend stocks – that can generate attractive income.
“It would take much more than one cut to move the needle as far as these factors are concerned,” Mr. Crowther said. “We believe it will be hard for the Bank of Canada to fully disconnect from the Fed, without strongly hurting the Canadian dollar. If the monetary disconnect remains very limited, we doubt it will be enough to rekindle bank earnings,” Hugo Ste-Marie, an analyst at Bank of Nova Scotia, said in a note.