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My top 3 UK shares to buy in August

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As the new month starts, I am looking for stocks to add to my portfolio or to buy more of.  I am impressed with each of the following UK shares so they are my top picks for August. This is why…

A FTSE 100 defence stock

The first stock I have chosen is one that I already own, BAE Systems (LSE: BA). At the end of July, this defence specialist released a very promising trading update. In fact, for the first half of 2021, underlying EBIT rose over 20% from the year before to over £1bn. The company also saw strong cash generation, with £461m of free cash flow.

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Its excellent performance also enabled the company to increase shareholder returns. The interim dividend was raised by 5% to 9.9p. Furthermore, it announced a £500m share buyback programme. This suggests to me that the BAE share price may still be too cheap and has upside potential. As such, I may add more of this UK share to my portfolio.

One risk that must be considered is the fact that its net debt has risen slightly to nearly £2.8bn. Although this is currently not a problem due to the company’s strong cash generation, I still feel it is slightly high, and needs to be reduced in the near future. This may slightly limit the amount that could be returned to shareholders.

A UK share with recovery potential

Whitbread (LSE: WTB) struggled during 2020, and its share price is still 25% lower than its pre-pandemic level. It is not hard to see why. In its 2020 results report, the Premier Inn owner said it made an operating loss of £839m. Revenues were also over 70% lower than the year before at £590m.

Even so, I feel that this FTSE 100 stock can recover. From June, 98% of its hotels have reopened and it has seen “very strong forward booking trends”. This makes me think that Whitbread can start to return to normality.

I also see opportunities for the company to expand, due to a strong balance sheet that includes over £1.2bn of cash and an undrawn revolving credit facility of £950m. As such, I believe that Whitbread has the potential to further increase its market share over the next few years, especially due to the struggles faced by others in the industry.

A dividend stock

PayPoint (LSE: PAY) is the final UK share that I am tempted to buy in August. The company is mainly a bill-paying specialist that operates in the UK and Ireland. But it also has its own delivery service, the popular Collect+. Although the pandemic did lead to slightly lower profits in 2020, there were still many positives to take away. For example, the company announced that it was increasing the dividend by 6.4%, meaning that it currently yields 5.6%. This is a major sign of confidence in the future of the business.

The firm has also made some recent acquisitions — Handepay and Merchant Rentals. It is hoped that this will increase the company’s card payments capabilities and broaden the customer base.

As such, although this is a highly competitive sector, I feel that PayPoint is in a strong position. This is the reason I would buy today.

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Stuart Blair owns shares in BAE Systems. The Motley Fool UK has recommended PayPoint. 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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