To supplement my pension, I hold a number of FTSE 100 stocks in an ISA. Whether I’m going to be able to meet my objective of retiring early remains to be seen. But for a bit of fun, I recently asked ChatGPT to identify a handful of Footsie stocks that it would choose to help me achieve my goal.
Although the software did say “you should check your own timeframe”, I thought it was a bit odd that it didn’t want to know how old I was.
However, leaving this to one side, the principles that ChatGPT used in its selection were:
- Reliable dividend income (no guarantees, of course)
- Reasonable growth (or at least, stability)
- Diversification
- Global exposure
- A balance of defensive and cyclical stocks
These appear fine to me. So let’s take a closer look at ChatGPT’s recommendations.
Fabulous five?
British American Tobacco was its first pick. It liked its generous dividend and global exposure. However, changing tastes and increased regulation were given as potential risks.
National Grid was next on the list. The electricity and gas group operates in a regulated sector, which means its cash flows are likely to be steady and predictable. This should then translate into a reliable payout. But energy infrastructure is expensive. And the group’s debt is on the high side which makes it vulnerable to interest rate rises.
The third selection happens to be my favourite FTSE 100 dividend share, Legal & General (LSE:LGEN). Based on amounts paid over the past 12 months, the stock’s yielding 8.75% as I write.
But it remains a concern to me that the group’s share price has disappointed in recent years. However, it’s possible to compensate for this (to some extent) by using the generous dividend to buy more of the stock, a technique known as compounding.
Other possible challenges include new entrants threatening to take market share. It also has billions in equities, bonds and commercial properties on its balance sheet. This makes it vulnerable to global market uncertainty.
However, it has a large pipeline of pension schemes that it’s looking to acquire and with the state retirement age likely to increase further, more people could start looking for private pension plans.
For these reasons, I think Legal & General’s a stock worth considering for inclusion in a long-term investment portfolio.
Next is BP, although ChatGPT’s reasoning seems flawed. It said its exposure to volatile energy prices “may help growth when commodity prices recover”. Surely it means ‘if’ rather than ‘when’? Also, it didn’t mention that the reverse is true.
Finally, it chose M&G. It noted that it’s one of the highest-yielding stocks on the FTSE 100 but cautioned that this “might be high for a reason”. In other words, it could be a case that investors expect earnings to fall and are therefore demanding a higher payout to hold the share. The software also cautioned that the group’s “exposed to markets, flows, and economic cycles”. But this could apply to most businesses.
A word of caution
However, we must be careful. In its short existence, ChatGPT has earned itself a reputation for making some things up. Using a computer programme might be easier but I think it’s better for an investor to look at human-complied data and form their own conclusions.
