I wanted to build a second income inside my ISA using high-yield FTSE 100 dividend stocks, and decided to ask ChatGPT for help. I did it partly for fun, but also to test whether a chatbot could create a sensible balanced portfolio.
First, a caveat. Chatbots like ChatGPT don’t have personal opinions, as they admit themselves. They pull in data from existing sources, which means their stock selections can reflect old articles or past commentary. It’s vital to check every fact as ChatGPT often presents data that’s four or five months old as if it was hot off the press.
FTSE 100 income shares
Artificial intelligence does understand basic investment tenets, like diversification, but doesn’t always apply them in practice.
Recently, I asked ChatGPT to tip a balanced spread of five different stocks, and its suggestions included three FTSE 100 insurance companies. Their profits and income are affected by very similar factors, and I’d expect them to perform in similar ways across the investment cycle, so that’s a risky thing to do.
Typically, when asked to produce a portfolio of FTSE 100 shares, it picks out longstanding names like Aviva, National Grid and Vodafone.
It isn’t hard to see why, as these are some of the most established dividend stocks on the FTSE 100, and have been popular with investors for years.
But investing is very personal, and I for one wouldn’t touch National Grid today, because it has to invest tens of billions into the green energy transition and UK infrastructure projects are tricky to pull off. If costs overrun the dividend could come under pressure or the board might pursue another equity raise.
I’m also wary of telecoms giant Vodafone. Its shares have done badly for most of the millennium, and its dividend has been cut twice in recent years. Again, investors love it, but I’m not convinced and so far, I’ve seen little to change my mind.
Imperial Brands is a winner for some
On this occasion, it also picked out tobacco firm Imperial Brands Group (LSE: IMB), as a top passive income stock.
Tobacco stocks have long been reliable cash machines despite longstanding investor concerns about volume declines or regulation. Imperial Brands has scale on its side and has fought back by building market share and investing in next-generation products like vaping.
Imperial’s share price has climbed an impressive 33% in the past year and 135% over five. The current trailing dividend yield is roughly 4.85%, which is lower than before but comfortably higher than the FTSE 100 average of 3.25%. Its price-to-earnings ratio is about 10.2, which looks pretty good value given its strong run.
On 7 October, Imperial Brands reported it remains on track to meet full-year guidance. Its next-generation product business is growing strongly, and it’s executing a £1.45bn billion share buyback for FY26. Not everyone’s comfortable owning a tobacco business but I think it’s worth considering for those who are.
Like most good companies, Imperial Brands aims to increase dividends every year. It’s forecast to yield 5.1% over the next 12 months. A £10,000 investment would generate income of £510 if that holds up, with any share price growth on top. As ever, investors must use their own intelligence, rather than relying on the artificial variety.
