We already seem to rely on AI for a whole host of things. But can it select a perfect portfolio of FTSE 100 stocks that dish out passive income?
For a bit of fun (and no more), I decided to test this out with ChatGPT.
The usual suspects
Having entered my query, the AI bot trotted out an answer featuring seven of the UK’s biggest stocks paying income. I’ll say a little more about that number in a bit.
The first six recommendations read like a who’s who of trusted UK-listed dividend heavyweights:
- British Amercian Tobacco
- Legal and General
- Phoenix Group
- M&G
- National Grid
- HSBC
The final stock completing the set arguably sticks out from the rest.
Dependable income
Rio Tinto (LSE: RIO) is one of the world’s biggest diversified miners. It’s also boasted great income credentials for some time.
Over the years, Rio’s dividend yield has been far above the average of the FTSE 100. Indeed, that’s the case today. Right now, the shares yield 5.2%. The index offers ‘just’ 3.1%.
Naturally, we can’t rely on the past to predict the future. But I would be surprised if Rio stopped returning a high percentage of its profit to shareholders. It consistently generates strong free cash flow and has some of the lowest cost projects in the world. The balance sheet carries only a relatively small amount of debt too.
Considering how much copper, iron ore, and other metals will be needed for the green energy revolution, I’m also bullish on the firm’s long-term prospects.
Buyer beware
Even so, I have some concerns.
Rio’s total dividend has been falling in recent years (despite still boasting an above-average yield). This goes some way to underlining the fact that anything related to commodities can be rather volatile. Not only does it not have any control over the price of what it digs up, the very process of doing so is often dangerous and difficult.
But there are other, more general things that make me uneasy.
For one, ChatGPT only put forward seven stocks (I didn’t specify a number). Call me a cautious soul but I think that’s too few. While there’s no magic figure, a portfolio such as this could see a big drop in income if one or two encounter problems.
Eagle-eyed Fools will also spot that at least four of the seven — Legal & General, Phoenix Group, M&G and HSBC — come from the Financials sector. If the UK and/or global economy goes through a sticky (or stickier) patch, all could suffer. And that might mean less passive income being dished out.
Interestingly, ChatGPT said that its suggestions were diversified. I beg to differ.
Don’t rely on the bot
Ultimately, I’m not comfortable taking the easy option with my hard-earned cash. Yes, I might consider some of those names the AI bot churned out, based on their history of distributing cash for shareholders in the past. But I know more research into their future prospects is needed.
Although I did specify only top-tier stocks in my prompt, this selection also felt a bit…lazy.
Knowing that the UK market is a dividend hunters dream, I think there are a whole host of other stocks to ponder buying if generating income is the name of my game.
