2 UK shares I’d gladly buy in October

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So far, 2023 has been a damp squib for UK shares, with the FTSE 100 index up just 1.1% since 30 December 2022.

However, this figure excludes cash dividends — a major component in long-term returns from UK stocks. The Footsie has a cash yield of around 4% a year to attract income investors (including me).

Two UK shares I’d like to buy more of

My wife and I own 20 UK stocks in our family portfolio: 15 FTSE 100 and five FTSE 250 shares. Here are two of our current holdings that I’d love to add to this month:

Income stock #1: Barclays

Barclays (LSE: BARC) shares hit a 52-week peak of 198.86p on 8 March. Then a US banking crisis sent this stock plunging to a 52-week low of 128.12p by 20 March.

Barclays shares now trade at 157.46p, valuing the Blue Eagle bank at £24bn. Though the stock is up 8.5% over one year, it has lost 9% of its value over five years.

My wife and I bought Barclays in July 2022 for 154.5p — less than 3p below the current price — for a tiny paper gain of 1.9%. However, we bought into this FTSE 100 firm for its market-leading dividends.

Barclays shares offer a cash yield of 4.9% a year — nearly a full percentage point above the Footsie’s dividend yield. However, this payout is covered 4.5 times by trailing earnings — a huge margin of safety.

Then again, British banks are braced for earnings hits from rising bad debts and loan losses. With consumers struggling with higher interest rates, high inflation, and huge energy bills, the short-term outlook for lenders looks tricky.

Even so, had I the cash to spare, I would gladly buy more Barclays shares today. However, I can’t, as I am in the process of moving my assets between accounts. And this painful process is taking forever…

Cheap UK shares #2: L&G

One should never ‘bet the bank’ on any one company or stock, but I would be happy were my current stake in Legal & General Group (LSE: LGEN) several times larger.

For the record, my wife and I bought our holding in L&G on the same day as we invested in Barclays (in July last year). We paid an all-in price of 246.7p, which I saw as a bargain at that time.

At present, L&G stock trades at 217.5p, valuing the asset manager and insurer at £13bn (or around half the size of Barclays). Over one year, the shares are down 2%, while they have lost 15.9% of their value over five years.

To me, the L&G share price seems incredibly low, given how well-run this 187-year-old business is. Also, it means that our initial stake is worth 11.8% less (on paper, at least).

That said, we have every intention of holding onto our L&G shareholding for many years to come. And while we wait for the share price to rebound, we will happily collect dividends at a 9%-a-year yield.

Then again, like Barclays, L&G’s fortunes are closely tied to the financial markets. And if asset prices melt down again, as they did in the Covid-19 collapse of spring 2020, then L&G’s share price could take a hefty knock. But I would probably buy even more UK shares while there is ‘blood in the streets’ again!