Buying income stocks can be a great way to generate a steady cash flow from dividend payments. Fortunately, the London Stock Exchange is brimming with high-yield investment opportunities to take advantage of.
But can artificial intelligence (AI) help investors find Britain’s best passive income generators? I’ve explored ChatGPT’s stock-picking abilities before with some good results, alongside glaring factual errors. Naturally, I was curious about how it would address the challenge of constructing the ‘perfect’ income stock portfolio.
Here’s what OpenAI’s chatbot told me.
The 10 income stocks it advocated
Putting ChatGPT’s skills to the test in the past, I’ve noticed the AI bot’s fondness for FTSE 100 constituents. True to form, all 10 dividend stocks my cognitive chum championed came from the UK’s blue-chip index.
I think it’s a fairly solid selection of shares. But I’m disappointed that some dividend yields ChatGPT quoted strayed far from reality. Despite big advances in AI, the system’s tendency to churn out false information is a big concern. Investors should always scrutinise its claims.
| Income stock | Yield according to ChatGPT | The true yield |
|---|---|---|
| Unilever | 3.5% | 3.3% |
| Legal & General | 8.5% | 8.9% |
| National Grid | 5.5% | 4.5% |
| British American Tobacco | 9.0% | 7.9% |
| GSK | 4.0% | 4.6% |
| Diageo | 2.5% | 3.7% |
| Segro | 3.0% | 4.4% |
| Vodafone | 10.0% | 5.6% |
| HSBC | 7.0% | 5.7% |
| SSE | 6.0% | 3.6% |
To its credit, my robotic helper proposed a well-diversified mix of companies. Consumer staples, financials, utilities, healthcare, and telecoms are all portions of the pie. For good measure, it also plumped for a Real Estate Investment Trust (REIT) in Segro.
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My view
I like many of ChatGPT’s picks. Legal & General, British American Tobacco, GSK, and Diageo feature in my portfolio. Granted, none are risk-free, and their shareholder payouts aren’t guaranteed. But I’ve enough conviction to put my own money into these shares, so I can’t disagree with the choices here.
However, I’m not keen on every income stock in this ‘perfect’ portfolio. Vodafone, for example, looks in trouble. A debt-heavy balance sheet and crumbling sales in the critical German market mean I’d steer clear of this stock, despite the silver lining of an upcoming merger with Three.
My AI companion also failed to notice the telecoms firm’s decision to halve its dividend for 2025, announced over a year ago. Ironically, it acknowledged the supposed double-digit yield was risky. That’s a worrying mistake to make when seeking dividend perfection.
ChatGPT’s favourite
Pushed to name the best of the bunch, ChatGPT opted for National Grid (LSE:NG.).
I can see why. The electricity transmission operator’s monopoly status makes the National Grid dividend more reliable than most income shares, even if regulatory oversight limits its profit potential. Significant inflation-linked revenues and predictable cash flows provide a handy degree of added certainty.
Investors should balance those positives against enormous capital expenditure commitments for Britain’s ageing power grid infrastructure and added costs from net-zero schemes. Being the only firm in its market doesn’t mean there aren’t risks to contend with.
Nonetheless, National Grid doesn’t face many of the usual business cycle challenges other companies have to respond to. In addition, a forward price-to-earnings (P/E) ratio below 14.5 looks like a reasonably attractive valuation. On this one, ChatGPT’s got a point. It’s an income stock that deserves consideration.
