I asked Gemini — a ChatGPT rival — to give me the best passive income portfolio, and it told me that the “perfect” portfolio is entirely personal.
It said that everyone must balance specific financial goals, risk tolerance, and available capital. It also stressed the need for diversification across multiple income streams to ensure stability.
Initially, the AI provided a broad framework, dividing the opportunities into Investment Income (capital-heavy, low effort) like dividend stocks and REITs, and digital/business Income (time-heavy, scalable) such as online courses or niche websites.
That wasn’t really what I was looking for.
When I requested stock specific guidance for a UK audience, Gemini suggested building a foundation using low-cost, high-yield Exchange-Traded Funds (ETFs) such as the iShares UK Dividend ETF for broad market exposure.
To enhance the yield, it recommended supplementing with strong individual FTSE 100 dividend payers, specifically naming the insurer Legal & General and British American Tobacco.
It’s not overly detailed. It’s not overly impressive. But that’s why we shouldn’t use AI to guide us on financial decisions.
What’s wrong with it?
I’ll forgive it for misinterpreting my original question and suggesting I try and sell online courses. However, when it comes to actually making investments, I believe every suggestion needs both caveats and serious explanation.
For example, while Legal & General pays a subtotal 8.7% dividend yield, it’s worth noting that the payout ratio has been less than one over the past three years. This suggests the company’s net income is actually less than the amount it paid in dividends.
That doesn’t mean it can’t continue to pay the dividend. But it is a warning sign.
What is the perfect dividend portfolio?
Personally, I don’t invest for dividends today. I invest to grow my portfolio in the hope of taking a larger dividend in the future. That means I don’t have a huge number of dividend stocks in my coverage.
However, I’m in no doubt that the most effective dividend portfolio would involve heavily researched stocks from a variety of sectors.
In banking, I’d suggest investors consider Arbuthnot (LSE:ARBB). Despite a flat share price over three years, the investment case has quietly strengthened. Dividend payments have risen from 38p in 2021 to an estimated 53.5p this year, lifting the forward yield to 6.1%. Importantly, that income looks secure, with a forecast dividend cover of two times.
Balance-sheet conservatism is another differentiator. Arbuthnot’s loan-to-deposit ratio of 57.6% means it lends out just over half of its deposits, leaving a substantial liquidity buffer. By comparison, Lloyds operates at around 96%. This tells us that Arbuthnot is positioned cautiously, but also nods to the other wealth management services it leverages to make money.
Valuation is where the anomaly becomes most apparent. The shares trade at just 8.2 times forward earnings and at a price-to-book ratio of 0.5. Institutional analysts suggest this means it’s undervalued by as much as 70%.
However, the key perceived risk is size — big banks look safer. The spread between the buying and selling price is another concern. But I still think it’s worth a look.
