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How I’ll invest my next £800 in UK shares

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I’m very confident buying UK shares at this time. Even after the recent stock market recovery, the share prices of many UK companies are still very attractive. Many combine income and great value (meaning there’s a margin of safety in their current share prices). I think this means for investors like myself that there’s a unique chance to pick up shares for the long term, shares that can provide an income and capital growth too.

This share price plummeted at the start of the pandemic

One of the shares I’m most keen to invest my next £800 in is a company  whose shares I already own — Lloyds Banking Group (LSE: LLOY). The shares have some momentum now, after falling sharply when the pandemic sent the market spiralling down.

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It has taken a while for the shares to recover because banks have been seen as one of the big losers from the crisis. The industry is very tied to the overall health of global economies. Lloyds in particular is linked to the health of the UK economy. Therefore, fears of massive job losses leading to bad debts hit sentiment.

The prospect of a vaccine radically changes investor sentiment. That’s why I think the shares will keep rising in the short term. A boost could also come from regulators allowing banks to pay dividends again. The banks have been applying pressure for them to resume. 

Lloyds is a UK share I’ll look to add more of now in the expectation of big rewards to shareholders in the future. I expect it to provide a growing income for investors (once dividends are reintroduced), as well as to see substantial share price growth over the next six to 12 months.

Which UK share will I buy after Lloyds?

As I have some cash in my stocks and shares ISA, I have a watchlist of other shares too. Given that Lloyds is a play on the recovery of the stock market, I’d likely invest another £500 in a less cyclical company. As so many companies have cut their dividends this year, I’m keen to find reliable income-paying shares. This is why I’ll also add more to my holding in National Grid (LSE: NG).

The utility giant operates in both the UK and the US, so despite the US contested elections, most of the time and compared to much of the world, it’s working in very stable markets. Adding to the geopolitical stability is National Grid’s stable regulated earnings, which allow it to have great visibility over its income. As a result, it also can confidently pay its dividend, despite significant debts and its limited ability to raise prices quickly.

The big opportunity I think is around sentiment. National Grid has its unregulated Ventures business, which is tapping into renewable energy. I think this alone could excite investors and send the shares much higher. I’m investing on the basis that it’s undervalued, it pays a high dividend yield and other investors could well get excited by its green potential. All these factors, in my view, have the potential to drive the share price much higher.

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Andy Ross owns shares in Lloyds Banking Group and National Grid. The Motley Fool UK has recommended Lloyds Banking Group. 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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