2 Canadian Stocks That Get Better Every Time the Bank of Canada Cuts Rates

Borrowing costs don’t just change what you pay on a mortgage. It changes what the market is willing to pay for everything. When rates fall, investors usually get more comfortable taking risk, as future earnings get discounted less harshly and interest expense stops climbing. Canadian stocks with big debt stacks can breathe, and consumers often loosen up a little. And the Canadian stock that can feel “stuck” in a higher-rate world, like real estate investment trusts (REIT) and lenders, can suddenly look like the obvious winners again.

If you’re expecting the Bank of Canada to return to its rate-cutting stance, these two stocks are worth a close look today — before interest rates change again.

CAPREIT: Canada’s Largest Apartment REIT Has a Rate-Cut Tailwind

Canadian Apartment Properties REIT (TSX: CAR.UN) can thrive as borrowing costs fall as it lives and dies by housing demand and financing conditions. It owns apartments and rental housing, and it earns money by keeping suites full, nudging rents higher, and managing expenses. When rates ease, REIT sentiment often improves quickly, but apartments also have a structural tailwind. Canada still needs more housing than it has.

Over the last year, CAPREIT has kept the focus on operating basics and portfolio shaping rather than flashy promises. It highlighted steady same-property performance and cost discipline, while using buybacks as a value lever when it believes the units trade below what the real estate is worth. That steady approach matters in a rate-cut cycle, as investors start rewarding the names that can compound without needing a perfect economy.

In its year-end 2025 results, diluted funds from operations (FFO) per unit increased year over year, with 2025 FFO per unit reported around $2.541, helped by lower interest expense and accretive unit repurchases, even as dispositions reduced revenue. With a market cap around $5.6 billion, the dividend stock offers a 4.2% yield on a monthly distribution of $0.12917 per unit ($1.55 annualized). The upside comes from cheaper refinancing, steadier demand, and any re-rating of apartment REITs as rates fall. The risks include slower rent growth, cost pressures, and the reality that housing policy headlines can move investor sentiment fast.

EQB: A Challenger Bank in Transition With a Huge Deal Pending

Equitable Bank (TSX: EQB) can thrive in a falling borrowing-cost environment since it plays both sides of the rate story. It earns spread income, but it also benefits when mortgage and lending activity becomes less restrictive and confidence returns. It has grown as a challenger bank with a strong presence in alternative mortgages, commercial lending, and digital deposits through EQ Bank.

Over the last year, EQB’s narrative has been shaped as much by leadership transition as by strategy. In June, long-time CEO Andrew Moor — Canada’s longest-serving bank CEO and the architect of EQB’s transformation into a national challenger bank — died unexpectedly at 65. Chadwick Westlake, EQB’s former CFO, was named permanent president and CEO in August. Westlake has moved quickly since then, cutting 8% of the workforce and focusing the company on operating leverage, expense discipline, and a return to a 15%+ ROE target. For Foolish investors, understanding who is running the bank matters as much as the interest rate thesis.

In December, EQB said it would acquire President’s Choice Bank and the PC Financial business from Loblaw Companies for $800 million. PC Financial is one of Canada’s largest credit card franchises, with over 2 million active accounts, more than $5.8 billion in assets, and distribution through 2,500 Loblaw stores and 180 in-store banking pavilions. Loblaw would become EQB’s second-largest shareholder, with a roughly 17% stake. It’d be a big shift: EQB would go from a digital-first bank with no physical footprint to an omnichannel operation tied to the PC Optimum loyalty program and its 17.5 million active members, growing its customer base from roughly 800,000 to approximately 3.5 million overnight.

The deal is progressing but not yet closed. The Competition Bureau cleared it, but as of early March it still requires OSFI and Finance Minister approval. Think of it as meaningful upside potential rather than a done deal.

Westlake leaned into sharper execution and efficiency in his first months in the role. For the first quarter of 2026, EQB reported adjusted diluted EPS of $2.26 and adjusted net income of $85.2 million, with a CET1 ratio of 13.6% and book value per share of $81.75. It also declared a dividend of $0.59 per share. On valuation, EQB trades around $112, with a market cap around $4.1 billion, a dividend yield around 2.2%, and a P/E of 17.5. The upside comes if lower borrowing costs revive activity, the PC Financial deal closes and integrates well, and credit stays contained. The risks include credit losses rising if the economy slows more than expected, margin pressure, and execution risk on a complex acquisition under new leadership that is still establishing its track record.

Bottom line

When the BoC returns to rate-cutting, these two Canadian stocks offer different ways to win. CAPREIT gives you a housing-linked income business that can rerate as financing stress fades, backed by Canada’s structural housing shortage. EQB gives you a growth-minded lender navigating a leadership transition and a transformational acquisition — higher potential upside, but more moving parts. Watch for the Finance Minister’s decision on the PC Financial acquisition as the most important near-term catalyst for EQB.

Here’s what a $7,000 investment in each could bring in in income.

COMPANYRECENT PRICENUMBER OF SHARES YOU COULD BUY WITH $7,000ANNUAL DIVIDENDTOTAL ANNUAL PAYOUT ON A $7,000 INVESTMENTFREQUENCYCAR.UN$36.00194$1.55$300.70MonthlyEQB$110.3763$2.36$148.68Monthly

You don’t need a perfect economy for either one to work. You just need rates to stop being a headwind, and for each business to keep executing like it has something to prove.

The post 2 Canadian Stocks That Get Better Every Time the Bank of Canada Cuts Rates appeared first on The Motley Fool Canada.

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More reading

• 2 Cheap Canadian Stocks to Pick Up Now
• The Bank of Canada Just Held Rates at 2.25%. These 3 Dividend Stocks Are Built for the Wait.
• 1 Canadian Dividend Stock Down 12% to Buy Now and Hold for Years
• Opinion: The Best Place to Put Your $7,000 TFSA Contribution This Year
• 2 Dividend Stocks to Lock In Now for Decades of Passive Income

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends EQB. The Motley Fool has a disclosure policy.