The market is likely to improve on Rishi Sunak’s accession to PM. After all, he seems much more fiscally responsible, and that’s what the market wants to see.

But with both indexes down considerably, I’m looking for cheap stocks to add to my portfolio before November starts.

Hargreaves Lansdown

Hargreaves Lansdown (LSE:HL) shares have been on a downward track over the past 12 months. In fact, they’re down 52%. The investment supermarket saw its share price soar during the pandemic as Britons increasingly turned to investing. After all, there wasn’t much else to do.

However, as was arguably predictable, Hargreaves wasn’t able to continue growing at such a rate following the pandemic. But considering the current economic environment — with a cost-of-living crisis — I don’t think the firm is performing too poorly.

A trading update on 17 October highlighted the firm brought in net new business of £700m in the quarter to 30 September, with assets under administration reaching £122.7bn.

In the long run, I think there are several reasons to be positive about this stock. As many as 1 in 10 people started investing during the pandemic and more and more investors look to take charge of their own investments. As the UK’s largest investment platform, with 1.7 million users, Hargreaves stands to benefit.

I already own Hargreaves shares, but with the share price near its lowest in 10 years, and a 5.7% dividend yield, I’d buy more.

Barclays

Barclays (LSE:BARC) is an unloved British banking share. It’s a giant of the banking world, but it’s largely seen as unexciting. And 2022 hasn’t exactly gone to plan. While other banks performed well on higher interest rates, in July, Barclays reported a fall in pre-tax profits. This was due to a £1.9bn charge to cover the cost of buying back securities it sold in error.

The stock is currently down 26% over the course of the year. But there are some very positive fundamentals. Barclays has already put aside £300m for bad debts induced by inflation, but higher interest rates are pushing up margins.

Banks have already seen margins increase, but with Bank of England interest rates set to near 6% next year, net interest margins (NIMs) will soar. Recessions certainly aren’t good for credit quality, but higher NIMs should more than make up for it.

Moreover, the bank earns around a third of its revenue from the US. And with the pound weak, dollar-dominated income will be inflated when converted into GBP. Once again, I already own Barclays shares, and despite a poor year so far, I’d buy more shares while it trades at around 150p.

There’s also the matter of a 4% dividend yield. It’s not groundbreaking, but it’s certainly good to have.

The Footsie dodges the global meltdown

Since the end of 2021, the FTSE 100 has lost less than 4.6% of its value. Adding in at least 3% for cash dividends already paid out in 2022 takes the index’s return closer to zero. That may not sound very attractive, but it’s a completely different story across the Atlantic.

In the US, the S&P 500 index has slumped by 18.2% this calendar year. Meanwhile, the tech-heavy Nasdaq Composite index has crashed by over 29% in 2022. And while other major stock markets have followed US shares down, the London market has been a relatively calm port in this global storm.

Barclays shares take a beating

Earlier this year, my wife and I both bought shares in big UK bank Barclays (LSE: BARC). To us, stock in the ‘Blue Eagle’ bank looked undervalued then — and may be even cheaper right now.

At its 52-week high, Barclays stock peaked at 219.6p on 14 January. Alas, global stock markets imploded after Russia invaded Ukraine on 24 February. At its 2022 low, this FTSE 100 share crashed to just 132.06p on 12 October. On Friday, it closed at 146.44p, down more than a quarter (-26.5%) over the past 12 months. The stock has also shed almost a fifth (-19.9%) of its value over five years. Ouch.

A dirt-cheap share?

Currently, Barclays has a market value of £23.8bn — a mere fraction of its pre-2008 highs. In my view, this price collapse has pushed this Footsie share deep into the bargain bin. Today, this popular stock trades on a lowly price-to-earnings ratio of 4.9, for an earnings yield of 20.4%. That’s one of the highest earnings yields on the entire London market.

In addition, Barclays shares offer an enticing dividend yield of 4.3% a year, a little above the FTSE 100’s. Impressively, this cash yield is covered a hefty 4.8 times by earnings, which suggests that it’s rock-solid and also has plenty of room for growth.

Bad times ahead?

But dark clouds have gathered on the horizon for Barclays and other big-cap firms. A toxic combination of soaring inflation, sky-high energy and fuel bills, rising interest rates and collapsing consumer confidence indicate a UK recession may be inevitable. But Barclays’ balance sheet is stronger than it’s ever been, with billions of pounds of spare capital to absorb future bad debts and loan losses.

In summary, 2022-23 is set to be a tough time for UK businesses, both big and small. Yet to me, this stock offers outstanding value to a patient, long-term investor like me. And if Barclays stock slides again, I may even buy more shares!

With centuries of experience, these banks have been crucial in developing the British economy as you know it today. They have funded businesses throughout the country and have helped elevate the economy. 

As a result, the top UK banking shares today offer strong dividends and steady growth. And over the years they have become the pillars of the investment community in the country.

We’ll break down what beginner investors need to know to explore and invest in the thriving UK finance sector, by looking at the top five banking shares in terms of market share. 

What are bank shares?

Bank shares are publicly listed companies that provide a broad range of financial services to the public and businesses alike. 

Common operations include maintaining accounts and providing loans, mortgages, and asset management services. Banking groups also provide secure transactional pathways that enable account holders to pay and receive money via instruments like credit cards, debit cards, and digital transfers.

Top UK banking shares

Here are some of the top UK banking shares in order of highest market cap.

1.  HSBC Holdings 

The European banking giant, established in Hong Kong in 1865, has grown to become a huge force in the field. Currently, HSBC Holdings (LSE:HSBA) has the highest total assets of all major European banks, worth over $15trn. And the banking firm now has a new area of focus and a new strategy that looks exciting on paper. 

In the midst of the pandemic in 2021, HSBC announced that it was switching focus to the growing Asian markets while slowly withdrawing from Britain and the US. This led to the banker cutting over 35,000 jobs and acquiring smaller banking groups in countries like Singapore and India, further cementing its Asia-first strategy. 

And the move as already proven to be a successful switch for the banker. In July 2022, HSBC announced that it had become the first foreign lender to open a Communist Party of China committee in its Chinese investment banking subsidiary. While this move has been criticised by regulators in the UK, investors see this as a strong move that could open up a vast, economically affluent market.

As of July 2022, HSBC shares have regularly outperformed the FTSE 100 index. While this is not an indicator of future returns, 2022 has been a very turbulent economic period. This banking share’s ability to navigate choppy waters is impressive.

2.  Banco Santander SA

Banco Santander (LSE:BNC) or Santander Bank as it is known in the UK, is the 16th largest multinational bank in the world. It is one of the biggest bankers listed in the LSE today and has a huge presence in South America. It is also expanding slowly into the emerging Asian market as well. 

Santander’s priority over the last few years has been customer acquisition. Its campaign has proven successful, adding 32m new customers since 2015 and taking its total customer base to 153m. During this growth, the business has been maintaining a steady operating income that hasn’t dipped below €20bn since 2008.

And profits have been increasing too. In fact, 2021 was the most profitable year for the bank in its history, bringing in €15.3bn, thanks to strong business momentum across most regions. The company is also seeing loan approval rates go up in cash-rich regions like Europe and the US. The repaying ability of the average citizen in those regions is much higher than in Santander’s developing markets, which is a sign that recurring revenue growth could be high over the coming years. 

Santander shares might be lagging behind some of the other companies on this list when it comes to digital banking services. But it is making good strides and is actively developing a range of digital banking services. In 2021, 54% of its total sales were through its digital channels.

3.  Lloyds Banking Group 

As a mainstay of the British finance sector, Lloyds Banking Group (LSE:LLOY) is the most recognised bank in the UK. Since its operations are highly focused around Britain, Lloyds shares and its performance are seen as a barometer for the larger UK economy.

The cash-rich banker is looking to diversify its assets. Since a large majority of its income is from mortgage lending, the banker decided to enter the real estate market in full force in 2021. A partnership with top UK real estate developer Barratt Developments will see the bank acquire 50,000 plots by 2030, making it a top 10 developer in the region. 

Diversifying assets is crucial for UK banking stocks to avoid the pitfalls of recessions. The only way banks can offset losses from payment defaults is to invest their excess cash effectively. And despite falling housing prices, this move may open up a whole new market for Lloyds to explore over the next decade. Offering prepackaged loans for houses developed by Lloyds could become a unique sales pitch that could draw young buyers.

4.  Barclays

This universal British banker offers banking and investment solutions across the globe. With a strong presence in the US as well as top economies in Europe, Barclays (LSE:BARC) is one of the most recognised names in the world of finance. 

The firm has made between £5bn and £8bn a year since 2018 on credit card payments alone. It also has a thriving business banking division and is a highly digitised business offering cutting-edge mobile banking solutions. Its banking app is one of the most downloaded in the western world with 10m users (as of 2021) and 3bn+ logins.

This FTSE 100 bank share’s poor performance across 2022, given the economic turbulence in the UK, has made its valuation incredibly attractive. It is currently one of the cheapest blue-chip banking stocks listed on the LSE. But investors and the board alike are sure that Barclays, like most top banking shares, will make a strong comeback as things get better.

5.  Natwest Group 

The final banking share on our list is no slouch. Natwest Group (LSE:NWG) is the largest business banker in the country. Supporting over 19m customers in the UK, Natwest aims to provide cutting-edge banking solutions and also has lofty environmental sustainability goals.

In fact, Natwest announced its Green Mortgage product, with £728m of lending allocated to champion green businesses. The bank supports several businesses that are helping other businesses meet their environmental goals as well. Natwest’s digital offerings are popular too. Over 60% of its retail current account holders interact with the bank only through digital mediums. 

On the business side, 2021 was a great year for Natwest. Total lending values grew by £7.8bn, primarily driven by mortgages. While this UK share has struggled like every other financial institution in 2022, over the last 12 months of trading, Natwest shares have risen over 15%. This places it second in terms of returns compared to all other banks on this list (behind HSBC). 

This shows investor confidence when the FTSE 100 index has been struggling for stability. And looking at Natwest’s historic dividend growth and the average yield of 4.5% across 2022, it is clear why investors favour this banking share over others.

Why are UK bank shares falling in 2022?

In 2022, markets worldwide have witnessed huge collapses. It is clear now that the economic impact of the pandemic will be drawn out. And the UK is in a particularly vulnerable state right now due to rising geopolitical tensions in Europe and the ever-changing energy lobby. 

Rising costs have raised inflation throughout the year and are expected to outstrip 11% by the end of 2022. As a result, banking shares have become a hot topic of debate right now as the Bank of England mulls further interest rate hikes. While some big lenders like Lloyds stand to benefit from higher interest payments in the short term, investors are still concerned about the spending power of the average citizen if the UK enters a recession. 

Forcing consumers to save every penny creates a bad business environment, especially for banks. Most banks make money for every transaction and thus stand to make less in a recession. Historically, a period of poor economic growth is marked by banking stocks falling fast. Also, in a recession, payment defaults could increase, which is a liability. 

Will banking shares recover?

The data shows that finance shares are the first ones to recover from a crash because banks tend to invest right, be cash-rich, and use governmental support to recover losses quickly. 

All the banking shares discussed on this list are considered blue-chip finance stocks with huge cash reserves and assets. And even in an economic downturn, banking services will be essential. Even after the crash in 2020, the banking stocks on this list have shown strong signs of recovery and are steadily posting better results every quarter.

If you are looking to add UK banking shares to your portfolio as a growth option or for passive income, these bankers are a great starting point. By understanding how these top banking shares are different, new investors can understand the fundamentals better and know what to expect from an investment in banking shares in the UK. 

The FTSE 100’s highs and lows in 2022

At first, the FTSE 100 got off to a solid start in 2022. At its 52-week intra-day high, the index hit 7,672.40 on 10 February. But then Russia invaded Ukraine a fortnight later, causing global stock markets to plunge.

At its 2022 bottom, the Footsie plunged as low as 6,707.62 just last week (on 13 October). It has since bounced back over 2.6%, but is still far closer to this low than February’s high. Indeed, with the UK economy facing powerful headwinds (soaring inflation, skyrocketing energy and fuel bills, and rising interest rates), the FTSE 100 might find lower lows before this year is out.

The Footsie looks cheap to me today

Alas, the FTSE 100 has been a poor performer for most of the 2000s. At its 1999 peak, it hit 6,950.60 on 30 December 1999. Today, it lies around 1% below this level, having generated no capital gain in nearly 23 years. Thus, the only positive return from the Footsie since 1999 has come from its regular cash dividends. Yikes.

Nevertheless, I can’t help thinking that the FTSE 100 looks cheap today. It trades on a price-to-earnings (PE) ratio below 13.7 and a corresponding earnings yield of almost 7.5%. What’s more, its dividend yield of 4.2% a year is one of the highest among major stock indices. Also, this cash yield is covered almost 1.8 times by earnings, so it looks reasonably solid to me.

We’re buying cheap shares again

During June and July, my wife and I built a new mini-portfolio of 10 cheap shares, six of which came from the FTSE 100. As value investors, we chose these shares for their low price-to-earnings (P/E) ratios and high dividend yields. Returns from these cheap stocks have been very mixed — but their dividend income has started rolling in, which is our primary concern.

One cheap FTSE 100 share we’ve bought several times this year is big bank Barclays (LSE: BARC). The Blue Eagle bank’s stock has been up and down like a yoyo this year. From its 2022 high of 219.6p on 14 January, it crashed as low as 132.06p just nine days ago (on 12 October). As I write, Barclays stock trades at 142.6p, slightly below my summer buying price.

However, I still view Barclays as a bargain-basement share today. At the current price, it trades on under 4.9 times earnings, producing a mighty earnings yield of 20.6%. Furthermore, while its yearly dividend yield of 4.4% only slightly exceeds the FTSE 100’s cash yield, it’s covered a whopping 4.7 times by earnings.

In addition, though things look pretty rough for the British economy, Barclays has billions of pounds of spare capital to mop up loan losses and other negatives. Also, it has a large US investment-banking operation that often thrives during choppy financial markets. I think Barclays will be a good bet over the coming decade, which is why I plan to buy more shares soon!

Latest data shows that Barclays accounted for 3% of all buy orders via Hargreaves Lansdown in the past week. This puts the blue-chip stock a respectable seventh on the list of most popular stocks.

At the same time, the FTSE bank accounted for 0.68% of total sell orders. Should I join the rush among Hargreaves Lansdown investors and pile in today?

Value for money

As a disciple of value investing, I find Barclays’ share price pretty attractive on paper. City analysts think the bank’s earnings will fall 16% in 2022. However, this leaves it trading on a forward price-to-earnings (P/E) ratio of just 4.6 times.

I’m also a fan of Barclays’ 5% dividend yield. This beats the FTSE 100 average by almost a full percentage point.

Other reasons to buy Barclays

As a potential investor there are other more fundamental reasons I like the bank. Unlike Lloyds and NatWest, it has overseas exposure — in this case operations in the US — which could boost long-term earnings and offset potentially weak growth in the UK.

I also think Barclays’ investment bank could deliver exceptional profits when financial markets eventually rebound.

Bad loans to balloon?

That said, right now, the bank offers far more risk than I’m prepared to accept. The Barclays share price has fallen 25% so far in 2022 as earnings worries have gathered pace. I think it could continue to decline as the UK economy rapidly cools.

The business set aside £341m for bad loan losses during the first half. More hefty impairment charges could be coming down the pipe — possibly as soon as 26 October when third-quarter financials are due — while revenues are also in danger of slumping.

Taxing times

The possibility of a windfall tax being slapped on the banks is another threat to Barclays’ profitability. The Financial Times says that new chancellor Jeremy Hunt is considering taxing the banks to fill the government’s financial black hole.

Higher interest rates have boosted the banks’ bottom lines in 2022. Consequently, Hunt is considering tapping this bonanza by raising corporation tax to 33% on these businesses, according to reports.

Big challenges

Finally, as a long-term investor I’m concerned about the threat posed to Barclays from the growing list of challenger and digital banks.

Established operators are having to invest a fortune to offer the same dynamic service of digital-led newbies. Furthermore, these online-focussed banks have lower costs which gives them the financial firepower to offer ultra-attractive products.

It’s true that Barclays shares offer great value on paper. But this is a fair reflection of the colossal risks the bank faces in the near term and beyond. I’d rather buy other cheap UK shares right now.

Positives

I feel the big banks can now shrug off even the most savage economic downturn. Regulators and central banks have ensured that institutions have the adequate capital buffers to absorb colossal amounts of red ink. So should the worst happen, banks should be resilient.

Additionally, Barclays’ diversified business model means many of its lines are less exposed to the direction of the UK economy. In contrast, peer Lloyds Bank is more focused in UK retail banking, thus more susceptible.

Furthermore, high inflation is increasing the prospect of higher interest rates for longer. High interest rates should boost lending margins for Barclays.

Why Barclays shares over the other banks?

I think Barclays shares are already priced for misery, so there is upside potential for a contrarian like me. Big lenders’ stocks are currently trading around 20% below share price targets set by research analysts, according to Morningstar. The reason Barclays is the most attractive to me is simply because it is the cheapest of the lot. It has a price to earnings ratio of five times, whereas its peer average is eight times. For example, Standard Chartered is valued at more than double (8.9 times) Barclay’s.

The big risk for me here is if Barclays’ big discount relative to its peers is justified. I do not think it is. Much of the bank’s trials and tribulations have been self-inflicted. I think this has weighed negatively on the sentiment of Barclay’s shares. One example is £1.9bn in litigation and conduct charges the bank settled in the first half of the year. Frankly, I don’t think Barclays shares will be on the naughty step for long once the bank gets profits moving back in the right direction.

Headwinds for Barclays

However a key challenge I envisage for Barclays is the collapse of deal-making as interest rates rise.

This year, the number of IPOs in the US and Europe have tumbled. (M&A) activity has crashed to historic lows. Barclays is a leading player in this area so a protracted lull could sting its bottom line.

Conversely, trading desks do well when financial markets are volatile, whether on the way up or down. Barclays is well positioned to reap the benefits.

Best of the banks

So, while I feel a downturn may be brutal for customers and employees, for banks it could be a gift in disguise. Barclays is not the only big bank listed on the FTSE 100 that has the potential to do well. But I am leaning towards it because it offers the best value.

The relatively cheap price looks like a bargain to me once I consider analysts price targets for the stock over the next 12 months is nearly double its current price.

I will most likely buy shares in Barclays before the month is out.

The reasons might seem obvious. With inflation soaring, the Bank of England is pumping up interest rates. And a recession looks to be approaching rapidly. So it’s natural that bank shares will be on a downer.

But at times like this, I remember ace investor Warren Buffett‘s thoughts on how great it is to buy a wonderful company at a fair price.

Best bank?

Is Barclays a wonderful company? I think it’s been possibly the UK’s best-managed bank for the past couple of decades (apart from one or two lapses). And its balance sheet and liquidity look rock solid to me. I can’t say there’s no chance it will go bust in the next few years, but I’d rate the probability as vanishingly low.

Barclays has also retained its international business, and has remained involved in investment banking. I think that gives it a defensive global nature. Lloyds Banking Group, which would also vie as the most attractive bank in my books, took a very different approach following the financial crisis.

Lloyds refocused on UK retail banking, and has become deeply involved in the housing market. It’s more exposed to the UK government’s approach to the economy — which, I think it’s fair to say, has not met with universal acclaim. This means Lloyds it’s very susceptible to a property downturn and any mortgage crisis.

Valuation

The other part of Buffett’s thought is the fair price thing. Though Lloyds is tied more closely to the UK’s troubled economy, its share price has fallen only 10% in the past 12 months. Barclays shares have lost two-and-a-half times as much.

How does the valuation look? Forecasts put Barclays on a price-to-earnings (P/E) multiple of 5.3 with a 5% dividend yield. Lloyds’ forecast P/E stands at 6.2 with the dividend yield at 5.7%.

Those look comparable to me. One’s a bit more pricey, for a bigger dividend yield. Both valuations, though, look painfully low compared to the FTSE 100 long-term average.

Barclays problems

Some of Barclays’ apparent undervaluation will surely be down to a blunder by the bank. First-half profits took a hit of £1.9bn in litigation and conduct charges. That’s down to the bank selling more securities products in the US than it was allowed to.

It’s not Barclays’ first financial misbehaviour issue either, and it must have damaged confidence with some investors. But I suspect these events will fade from memory fairly quickly if the bank gets profits moving back in the right direction.

Risk

I think it’s definitely risky buying any bank shares right now, with our current economic outlook. Barclays made provisions for bad debt in the first half, and those could well escalate in the second half.

But high interest rates should boost lending margins. And the current valuation makes me think the shares are oversold. With my next investing instalment I’ll probably buy bank shares, and they’ll be either Barclays or more Lloyds.

Market leader

One is FTSE 100 supermarket leader Tesco (LSE: TSCO). The competition might be growing, and Lidl and Aldi might be rubbing their hands with glee as shoppers chase rock-bottom prices.

But Tesco still commands 27% of the UK’s grocery market, with Sainsbury a distant second at 15%. Tesco is going to take some shifting if anyone wants to try.

First-half results should be with us on 5 October, and so much seems to have happened since Tesco’s first-quarter update back in June.

At the time, total retail sales (excluding fuel) had grown 2% on a like-for-like basis from the prior year. Sales were up 9.9% from three years previously. And that famous market share had edged up a bit.

The Tesco share price has shown some weakness, dropping 25% in the past 12 months.

But that’s pushed the stock’s forecast price-to-earnings (P/E) ratio down to around 9.5. And dividend yields are heading above 5%.

FTSE 100 bank

Standard Chartered and NatWest Group have Q3 updates coming on 26 October and 28 October, respectively. But my sights are directed more to Barclays (LSE: BARC), with third-quarter figures due on 26 October.

Like financial stocks in general, the Barclays share price has fallen, down 25% in the past 12 months.

In this case, it puts the stock on a P/E of only around 5.4. The long-term average for FTSE 100 stocks is close to three times that, which makes Barclays look cheap on that score.

The forecast dividend yield is pushing 5%, with analysts lifting their predictions above 7% by 2024. How forecasts might hold up if we face a prolonged recession is the big unknown here.

One thing I do like about Barclays is its international exposure, which could help defend it against specific UK-centric dangers.

Oil & gas

Oil and gas stocks have had a good year, as oil prices have climbed. And that brings me to Shell (LSE: SHEL), with a Q3 update due on 27 October.

The Shell share price has gained 35% in the past 12 months, and profits are climbing. In 2021, earnings were almost back to pre-pandemic levels. And forecasters predict a bumper year this year.

The dividend yield is around 4%, which is not close to the FTSE 100’s best. But it is being held down by the rising share price.

The price of oil has declined some way from its summer highs, with Brent crude dipping below $90 per barrel. And that’s got to be a big risk now. If oil carries on down, I’d expect the Shell share price to lose some of its gains.

Buy in October?

I don’t know if I’ll buy any of these three stocks. Not without doing my proper research, certainly. But at least I’ll be better informed by following October’s updates.

The volatility, and correction, have been engendered by the new government’s exuberant fiscal policy. A little over a week ago, the chancellor promised to lower taxes and incentivise economic activity.

However, while tax cuts may sound great, the concern is that our fiscal policy and monetary policy are working at odds. While the Bank of England (BoE) is attempting to bring inflation down through rate rises, central government is committing to policies that are highly likely to cause more inflationary pressure.

So, here are two discounted stocks I’m looking to buy for my portfolio.

Barclays

Barclays (LSE:BARC) is among the biggest banks in the world and the top three in the UK. However, it hasn’t performed quite as well as its peers this year, and that’s primarily due to a massive impairment on securities sold in error.

In July, Barclays reported a fall in pre-tax profits due to a £1.9bn charge to cover the cost of buying back securities it sold in error and a £300m impairment provision for bad debts. Pre-tax profits fell 24% to £3.7bn. As a result, the stock is down 22% over the year.

However, Barclays shares are also down 13% over the past week. The stock, like other banks and financial institutions, sank following the mini-budget. Things got worse amid reports that the government was planning to introduce quantitative easing to avoid paying £10bn a year in repayments to banks.

However, there is one big plus. And that’s the impact of higher interest rates on margins. Banks have already seen margins increase, but with BoE rates set to near 6% next year, net interest margins (NIMs) will soar. Recessions aren’t good for credit quality, but higher NIMs will more than make up for it.

Hays

Recruitment firm Hays (LSE:HAS) is down 13% over the past week, and is now down 41% over the course of the past year. However, the business has performed well over the past 12 months.

In August, Hays reported a jump in full-year profit thanks to an “excellent” fee performance across all regions amid a recovery from the pandemic. In the year to 30 June, operating profit rose to £210.1m from £95.1m a year earlier.

However, I, like many other investors, am trying to anticipate how companies will be performing in 6-12 months time. And the problem is, there are concerns that the UK labour market might be cooling.

As a result, Hays is currently trading at a discount. In fact, it is near its lowest point in 10 years. But personally, I think that’s overdoing it.

Yes, we have recession forecasts in UK, and elsewhere in Europe where Hays operates, but we’re not looking at deep Covid-like recessions. After all, in the UK, we’re actually seeing a lot of emphasis on enhancing economic activity.

Only £200?

While £200 might not seem like a lot to invest every month, this equates to £2,400 a year. Over five years, that’s £12,000, not accounting for investment performance.

A seemingly small amount in the short term has the capability to grow manyfold over the long term. 

High oil prices

Lately, BP (LSE:BP) has been benefiting from high oil prices, caused mainly by the war in Ukraine.

This trend in the oil market led to sparkling results for the three months to 30 June. During that time, the oil giant decided to increase its quarterly dividend to ¢6 from ¢5.46, a gain of 10%.

What’s more, the business is embarking on a $3.5bn share buyback scheme. This is essentially a way for the firm to return profits to shareholders.

It’s possible however, that the prospect of recession may result in a falling oil price, because demand could fall dramatically. This may lead to a decline in the BP share price.

Despite this, the company paid a total dividend of $0.22 per share in 2021. At the current share price, this results in a dividend yield of 3.68%. While dividend policies can change, it’s good to know that I could secure income from this investment.

Rising interest rates

Next, Barclays (LSE:BARC) shares have become increasingly attractive as interest rates continue to rise. Rates are now at 2.25% in the UK, and this essentially means that banks can charge more for lending money.

Similar to BP, I find Barclays attractive as a monthly investment because of its potential dividend yield. 

In 2021, it paid a total dividend of 6p per share. Currently, this equates to a yield of 3.71%. Even with a small investment, I could derive a decent income stream over the long term with this level of yield.

However, there is a possibility that the cost-of-living crisis deters potential customers from taking on more debt. There may also be greater levels of bad debts, with customers unable to keep up with repayments.

On the other hand, the business has operating cash flow of £3.88bn. This leads me to believe it can navigate its way through any short-term difficulties it may come across.

Overall, if I were armed with £200 in spare cash each month, I wouldn’t hesitate to add both of these firms to my portfolio. While they may face challenges, they appear well-equipped and boast solid dividend yields.