Britons love sticking high-yield dividend shares in their retirement portfolios. It’s easy to see why – these shares can provide attractive levels of income.
Recently, I was playing around with ChatGPT and I asked it to list five top UK high-yield shares for a retirement portfolio. Here are the names it gave me and my take on its picks.
ChatGPT’s dividend picks
ChatGPT based its selections on recent market data, looking for both high yields and stable business models. And it highlighted the following names:
- Legal & General
- Phoenix Group
- M&G (LSE: MNG)
- British American Tobacco
- BP
In terms of dividend yields, it seemed to lack certainty, offering me vague approximations (ie, it lacked proper data). I’ve put these in the table below.
| Stock | Prospective dividend yield |
| Legal & General | 8.5%-9.2% |
| Phoenix Group | 8.6%-8.8% |
| M&G | 7.8%-9.2% |
| British American Tobacco | 6.2%-7.7% |
| BP | 5.9%-6.5% |
My thoughts
Now, at first glance, this seems like a reasonable list. There are several well-known blue-chip companies there that have been around for ages.
Taking a closer look though, it has its flaws.
For a start, we have two companies that operate in structurally challenged industries. These are BP and British American Tobacco.
If I was looking to generate income from stocks for the next few decades (for most people retirement will last multiple decades), I’d be hesitant to put money into an oil company and a tobacco business. Who knows what these industries will look like in a decade’s time?
We also have two companies with very low dividend coverage ratios (the ratio of earnings per share to dividends per share). These are Legal & General and Phoenix Group.
Looking at earnings and dividend forecasts for this year, the former has a ratio of 0.98 while the latter has a ratio of 1.05. These numbers suggest that the payouts here may not be sustainable in the long run.
In other words, those buying today could face less income than anticipated in the future. They could potentially face share price losses too if dividend cuts are substantial.
I like this dividend stock
I do think M&G is a solid pick, however. In my view, it’s the best of the bunch.
This company doesn’t face the structural challenges that BP and British American Tobacco do. Over the next few decades, the savings, investment, and retirement industries should do pretty well I think.
Meanwhile, it has higher dividend coverage than Legal & General and Phoenix. For this year, the ratio is projected to be about 1.24 (still not great).
As for the yield, we’re looking at a figure of 7.7% this year, followed by 8% next year, if City analysts’ forecasts turn out to be accurate. So, there’s potentially some dividend growth on the cards for investors too (which is important in an inflationary environment).
Of course, M&G isn’t perfect. As a financial stock, it can be volatile when there’s turbulence in the markets.
My data provider tells me that it has a ‘beta’ of 1.6. This means that it’s approximately 1.6 times as volatile as the broader UK market.
Overall though, I see it as a solid pick for retirement income. In my view, it’s worth considering as part of a diversified portfolio.
