3 Top Dividend Stocks That Will Outperform Lowest Savings Rates

Most people have not realized, and probably will not realize, one of the major side effects of the potential interest rate cuts proposed by the Federal Reserve (Fed). An interest rate cut could help spur consumer activity, as U.S. consumer confidence recently hit a 2021 high. However, it can also hurt those who choose not to consume.

The average savings yield fell for the first time since 2021. As banking stocks like them, especially commercial ones Bank of America Co. NYSE:BAC AND Citigroup Inc. NYSE:CBe prepared for the growing possibility of lower rates in the future, savings account yields have begun to reflect this expectation.

Now more than ever, average portfolios could benefit from an increase in dividend income components. For this reason, stocks are popular Medical Properties Trust Inc. New York Stock Exchange: MPW, NextEra energy partners NYSE:NEPand even Whirlpool Co. NYSE:WHR they could become the best choice for those who already see notices in the mail from their banks.

Are dividends safe to start with?

The main risk of buying dividend stocks comes from the dividends themselves. Some companies can artificially (through creative accounting) make it appear that dividends are as safe as possible when, in reality, they are hanging by a thread.

Investors can understand this reality with enough common sense by starting with something as simple as analyzing the sectors behind each stock. If the underlying industry is facing potential slowdowns or there is a specific problem at the company, dividends kind of defeat the purpose.

Payments are likely to keep coming for Medical Properties Trust

Operating in the medical sector, Medical Properties Trust is part of a network of real estate investment trusts (REITs). These structures are required, by law, to pay investors up to 90% of all rental income collected on properties owned, after passing the first security check.

Whether the economy is booming or in recession, the healthcare industry will always be there to generate profits. This fundamental reality has led Wall Street analysts to assign a consensus price target of $5.6 per share, predicting an upside of up to 37% from the stock’s current price.

In the last quarter, real estate stocks in the Vanguard Real Estate ETF NYSEARCA: VNQ they underperformed both SPDR fund for the healthcare sector NYSEARCA: XLV and the broader S&P 500 up 13%.

Since this REIT is exposed to both the real estate and healthcare sectors, it offers investors a potential dual opportunity to achieve overall market return.

Medical Properties Trust is trading just 38% of its 52-week high and its valuations are ridiculous. On a price-to-book (P/B) basis, the stock’s 0.3x valuation reflects an 87% discount to the REIT sector’s 2.3x valuation.

At these valuations, and considering both real estate and healthcare stability, the stock’s 14.7% dividend yield becomes a can’t-miss consideration for investors of all types.

NextEra’s Clean Energy for Oil Rise

Oil prices fell to $90 a barrel last week, a level not seen since October 2023. Analysts at The Goldman Sachs Group Inc. NYSE:GS I think prices could go as high as $100 a barrel this year, and the reduction in supply could make this a reality.

More expensive oil pushes investors to increasingly look for alternative energy sources, often found in classic renewable sources such as wind and solar. As oil rises and savings yields fall, NextEra’s proposal could bring in more money.

Paying a 12% dividend is just the beginning as this stock commands an upside of up to 58% from where it trades today. Wall Street analysts think this could go as low as $46.4 per share, and at 46% of its 52-week high, the decline becomes irresistible for others.

Those at Goldman Sachs saw fit to increase their position in the stock by 61.1% over the last quarter. Considering Goldman’s net position of $13.3 million, this increase shows a net purchase of approximately $8.1 million.

Spread relative to the energy sector, NextEra’s P/B valuation of just 0.2x shows a 94% discount to today’s sector valuation of 3.6x.

The Whirlpool building front

With Warren Buffett betting on construction stocks like D.R. Horton Inc. NYSE: DHI and others, expectations for a construction boom are set.

Building permits in the U.S. have started to rise again, and with the prospect of lower rates making mortgages more affordable, plenty of new homes could hit the market in the next quarter.

Every home is typically equipped with essential appliances, most of which are supplied by Whirlpool and similar names. This is why Vanguard Group has chosen to be the largest shareholder of the stock, controlling almost 12% of the company.

Based on these real estate trends, management feels comfortable paying investors a 6% annual dividend yield, adding Whirlpool to the list of stocks that beat inflation and government bonds.

Analysts at Loop Capital believe the stock could reach $140 per share, a target nearly 21% higher than today’s price.

Before you consider Dr. Horton, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and DR Horton wasn’t on the list.

While DR Horton currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here