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Forget buy-to-let! I’m tempted by these 2 high-yielding FTSE 100 dividend stocks

Thanks to the Treasury’s tax crackdown, buy-to-let is now a lot of work for relatively little money. I wonder why people bother when you can buy top stocks offering attractive levels of capital growth and income, with all your returns free of tax inside your Stocks and Shares ISA.

These two FTSE 100 stocks both yield more than 8%, beating the average buy-to-let. They’re a lot easier to buy and manage than bricks and mortar, too, although they aren’t without risks.

Micro men

Software group Micro Focus International (LSE: MCRO) has had a bumpy time lately, as it struggled to swallow its 2017 acquisition, HP Enterprise’s software business. It started the year brightly but has since dimmed, falling 15% in the last three months as investors reacted to chairman Kevin Loosemore’s decision to dump half his stake for £11.6m. He may still hold half his wealth in the company, but it still doesn’t look good.

Micro Focus is nonetheless showing promise, with profits for the six months to 30 April more than doubling from $619.7m to $1.4bn. Revenues dropped 5.3% to $1,65bn but markets took that on the chin as they were in line with guidance.

Stay Focused

One attraction of the Micro Focus share price is its low forecast valuation of just 9.6 times earnings. The current yield is 9.4%, although that is forecast to fall to a still respectable 6%, as the group held its interim dividend at 58.33 cents per share.

The payout has healthy cover of 1.9, while the group’s cash conversion has been strong, with free cash flow of $429.9m in the last six months, double last year’s number. A return on capital employed of almost 60% is also impressive. The group has a market cap of £5.8bn, which makes its net debt of £3.12bn look relatively high. However, it is feeling flush enough to offer $200m of share buybacks over the months ahead, potentially with more to follow.

A new Standard

I’d also like to highlight another high-yielder, asset manager Standard Life Aberdeen (LSE:SLA), which has set itself the task of being “a world-class investment company” but isn’t quite there yet. It also started the year well only to flounder after posting a £31m drop in first-half profits to £280m earlier this month, even though assets under management and administration climbed 5% to £577.5bn.

Stock markets could be in for a bumpy time, which is never good for asset managers, but at least you aren’t overpaying with the stock trading at 13.3 times forward earnings. The Standard Life Aberdeen yield is still forecast to be a dizzying 9%, even if cover is low at 0.9, which means the payout isn’t fully covered by revenues.

And that’s Life

Earnings per share forecasts look flat for the next couple of years, and Roland Head recently struck a sceptical note, arguing that the group’s shift into emerging markets, notably China, isn’t guaranteed to pay off.

The Standard Life Aberdeen yield is still highly tempting. Analysts don’t expect the current payout to rise from here, but they’re not predicting a cut either, so today’s heady income will hopefully endure.

High-Yield Hidden Star?

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Harvey Jones 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.