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

The post-election stock market surge has made life harder for income investors. Rising share prices have pushed dividend yields lower. That’s good news for traders, but not much use for investors wanting to lock-in high yields.

Despite this, I think the FTSE 100 still contains some cracking income buys for dividend fans like me. In this article I’m going to take a look at three FTSE 100 stocks I’d be happy to buy for my portfolio this month.

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Lock in this 6.5% yield

My first pick is UK-Asia banking giant HSBC Holdings (LSE: HSBA). Shares in this £120bn stock have drifted about 10% lower over the last year.

One short-term concern has been the risk that civil unrest in Hong Kong could affect business activity in the region. There have also been concerns over HSBC’s profitability as it, like most banks, is suffering as a result of ultra-low interest rates.

The group only hit its target return on tangible equity of 11% during the first half of the year with the help of profits from a disposal. No such luck is expected in the second half.

However, interim chief executive Noel Quinn appears to have a firm grip on the situation and the bank’s performance is expected to remain stable this year. We could also gain some certainty on Brexit.

Management plans to maintain the dividend at current levels, giving the stock a forecast yield of 6.5%. At under 600p, I rate HSBC as an income buy.

I might buy more of this

Oil and gas giant Royal Dutch Shell (LSE: RDSB) is out of fashion but its products remain in demand. Analysts expect the group’s earnings per share to rise by about 18% over the coming year.

Although these forecasts are likely to rise or fall as energy prices change over the next 12 months, I think this is a useful reminder that Shell and other oil and gas producers aren’t going anywhere just yet.

The company is starting to plan for peak oil demand and is actively working on plans to develop lower carbon operations. One route that seems possible is that Shell will use its huge gas reserves to become a major electricity producer.

In the meantime, the shares offer a dividend yield of 6.3% that should be well supported by free cash flow. I remain a buyer for income, and may add to my holding over the coming months.

A contrarian 7.5% yield

For income investors, I think that FTSE 100 insurance group Aviva (LSE: AV) represents an attractive opportunity.

Recent years have seen the firm’s cash generation improve and debt levels fall. Profitability has also improved. The group’s return on equity — a useful measure for financial stocks — rose from a low of 3.8% in 2016 to 9% in 2019. Further progress is expected too.

Newish chief executive Maurice Tulloch is focused on simplifying the business and finding a route back to growth. The UK business has been split into two core divisions, while some of the group’s Asian operations are being lined up for a sale.

As far as I can see, these changes will preserve the group’s strong cash generation, which has covered the dividend comfortably over the last few years.

At current levels, AV shares offer a forecast yield of 7.5%. I’d be happy to buy more at this level.

A top income share with a juicy 6% forecast dividend yield

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With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

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Roland Head owns shares of Aviva and Royal Dutch Shell B. The Motley Fool UK has recommended HSBC Holdings. 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.