3 FTSE 100 dividend stocks with yields over 5% I’d buy in May

As the FTSE 100 (INDEXFTSE: UKX) nears record highs, Roland Head reckons he’s found some bargains.

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There’s an old stock market saying that you should sell in May and go away. It harks back to a time when stockbrokers took extended summer holidays.

But as my colleague Alan Oscroft explained, things are different these days. I share his view that selling in May could be a very expensive mistake.

If share prices fall in May, that’s fine with me. I hope to do some buying and would like to pay as little as possible for my chosen stocks. Today I want to look at three companies from my shortlist.

An essential business

National Grid (LSE: NG) operates the UK’s electricity and gas transmission network. Most people are familiar with this utility business, although not everyone knows that nearly half its profits come from similar operations in the US.

Some investors are worried about utility stocks at the moment, because Labour has promised to renationalise utilities if it’s elected. This is clearly a risk, but as my fellow Fool Graham Chester has commented, it seems likely that shareholders would be properly compensated.

In my opinion, National Grid is still worth considering for its dividend income. The company’s stable cash flows and long-term outlook mean that its results are fairly consistent. I think the stock’s 5.7% dividend yield could be a good opportunity to buy.

Take the long view

Last summer, shares in FTSE 100 insurer RSA Insurance Group (LSE: RSA) were heading towards 700p. It looked like the group’s turnaround had been completed successfully.

That all changed in September, when the firm warned that high levels of claims for flooding and subsidence in the UK meant that profits would be lower than expected. There were also losses in the group’s specialist division, which insures assets like ships and large buildings.

These problems have disappointed investors and RSA’s share price was still below 550p at the time of writing. But costly claims tend to affect most insurers from time to time. I’m not convinced it’s really a bad news story.

Chief executive Stephen Hester is widely seen as having done a good job so far. Last year’s results showed a respectable 12.6% underlying return on tangible equity, despite setbacks. The shares now trade on 12 times forecast earnings and offer a 5.3% yield. I think this could be a good time for income investors to start buying.

A big opportunity?

When we use companies’ slick websites and smartphone apps, it’s tempting to think that these user-friendly tools are backed by powerful modern systems behind the scenes.

All too often, this isn’t true, especially for banks, large companies and businesses that have been through complex mergers. Many of these firms still run antiquated computer systems that were designed decades ago.

FTSE 100 firm Micro Focus International (LSE: MCRO) makes money by supporting, operating and developing old software so that it keeps working reliably alongside more modern systems.

I think of this business as an iceberg — it’s a lot bigger than it looks on the surface.

I was bullish on Micro Focus when the price was under 1,400p in December. When the shares hit 2,000p recently, I felt priced out. But Micro Focus has dropped to under 1,800p at the time of writing. That’s lifted the forecast dividend yield back to a 5.3%. At this level, I’m tempted to pick up a few.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Micro Focus. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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