Dividend shares can be great investments for a retirement portfolio. Not only do these shares provide investors with regular income but they tend to be lower on the risk spectrum.
Recently, I was playing around with ChatGPT and asked the AI chatbot (which reminded me that it’s an AI app and not a financial adviser) to list five ‘world-class’ dividend shares for a retirement portfolio. Here’s what it gave me…
ChatGPT’s dividend picks
ChatGPT picked out five stocks with wide economic moats and excellent long-term dividend growth track records. The stocks were:
- Coca-Cola
- PepsiCo
- Johnson & Johnson
- Colgate-Palmolive
- Chevron
That’s an OK list. All of these companies have competitive advantages (brands, distribution, etc) that make them hard to compete with.
Meanwhile, they all have strong track records of dividend payments. All have raised their dividends annually for at least 25 consecutive years (several of them for over 50 years).
There’s little diversification there though. Three of them are from the Consumer Goods sector (and Coca-Cola and PepsiCo overlap significantly).
What about UK dividend payers?
Interestingly, there were no UK stocks on the list. So, I also asked the app to list five world-class ‘UK’ dividend shares for a retirement portfolio. Here, it gave me:
- Diageo
- Unilever (LSE: ULVR)
- British American Tobacco
- Legal & General
- GSK
Again, not bad but not perfect. There are some companies in there facing challenges today (Diageo and British American Tobacco).
Can we trust it?
Now, I’d never rely on ChatGPT for yield or valuation figures, or really for stock/investing advice at all. Because it could get the data from anywhere and it has been known to ‘hallucinate’.
So, I put a table together myself using a reputable data source. I’ve included dividend coverage, which measures earnings divided by dividends and provides insight into how sustainable a company’s dividend payout is (a ratio near one is a red flag).
| Stock | Dividend yield | Dividend coverage | P/E ratio |
| Coca-Cola | 3.0 | 1.5 | 22.5 |
| PepsiCo | 3.7 | 1.4 | 18.6 |
| Johnson & Johnson | 2.7 | 2.1 | 17.6 |
| Colgate-Palmolive | 2.7 | 1.7 | 21.2 |
| Chevron | 4.5 | 1.1 | 20.3 |
| Diageo | 4.4 | 1.6 | 14.0 |
| Unilever | 3.5 | 1.6 | 17.4 |
| British American Tobacco | 6.4 | 1.4 | 11.1 |
| Legal & General | 9.1 | 1.0 | 11.6 |
| GSK | 4.0 | 2.5 | 10.0 |
My pick of the bunch
As for my pick of the 10 stocks (bearing in mind that it’s for a retirement portfolio), I’d say it’s Unilever. It’s the owner of Dove, Hellmann’s, Persil, Domestos, and tons of other well-known household brands.
The main attraction of this stock is the consistency of its revenues and earnings. Ultimately, it’s a very predictable company (unlike a few other names in that table such as Legal & General, Chevron, and GSK) due to the nature of its products, which are bought day in, day out by consumers.
It also has a solid dividend yield. It’s definitely not the highest in the table, but coverage is solid at 1.6 times.
The valuation is also a little bit lower than those of consumer goods rivals Coca-Cola, PepsiCo, and Colgate-Palmolive. I think a price-to-earnings (P/E) ratio of 17.4 for this company is reasonable given how dependable it is.
Of course, it’s not perfect. Today, companies like Unilever are facing intense competition from new brands gaining traction on social media.
I think this UK stock is worth considering for a retirement portfolio though. I like the long-term risk/reward proposition.
