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A 5% FTSE 100 dividend stock I’d buy today, and a falling knife I’d avoid

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The FTSE 100 currently offers an average dividend yield of 4.3%. However, some stocks in the index offer much higher levels of income for investors. But not all of these dividends are as secure as they seem…

With that in mind, here’s one 5%-yielding FTSE 100 stock that seems like an excellent income investment, and one FTSE 250 income play that appears unlikely to offer investors a positive return.

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Landsec

Landsec (LSE: LAND) is the largest publically-traded real estate investment trust (REIT) in the UK, owning and managing around £13bn of property, mainly in London. Concerns about the state of the commercial property market have hit the company’s stock price recently. Nevertheless, recent trading updates from the group show it’s coping well with these pressures. 

The REIT’s half-year results showed a 1.4% increase in overall rental income, and adjusted earnings per share remained stable. That’s quite impressive considering the operational problems some of Landsec’s smaller peers are facing. 

The company’s sector-beating returns suggest the stock could be worth adding to your portfolio as an income investment. It currently yields 5% and is trading at a price-to-book (P/B) ratio of 0.7, which suggests the shares offer a margin of safety at current levels. 

Micro Focus

While Landsec is outperforming its sector, Micro Focus (LSE: MCRO) is struggling. For the past few years, the company has been trying to get to grips with its largest-ever acquisition and it’s starting to look as if the business has taken on more than it can chew. 

Micro Focus has issued a series of revenue warnings over the past few years. Its latest, released last week, warned investors to expect a 6-8% decline in revenues on a constant currency basis in its current fiscal year.

Shares in this tech stock have plunged over the past 12 months as it’s consistently failed to meet its own targets. From a high of more than 2,100p in June 2019, it’s now changing hands for less than 800p. 

Considering the company’s dismal outlook, it appears as if there could be further declines on the cards. With this being the case, while shares in Micro Focus might look attractive after recent declines, it could be best for investors to avoid the business.

It’s trading at a price-to-earnings ratio of under five, which suggests a margin of safety. However, with revenues falling, it’s difficult to rely on this number. 

The same is true of the firm’s dividend yield. At present, the stock offers a highly attractive dividend yield of 10%. However, with revenues falling, Micro Focus could fail to hit this cash return target. 

As such, it might be best to avoid this falling knife for the time being. There are plenty of other income investments out there (such as Landsec), which appear to offer much more attractive risk/reward prospects.

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Rupert Hargreaves owns shares in Landsec. The Motley Fool UK has recommended Landsec and 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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