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Can artificial intelligence (AI) offerings like ChatGPT help us choose stocks and shares for our passive income ISAs?
I asked it to generate a few ideas for me. And it came up with a set of UK dividend stocks to consider choosing from. I stress the ‘consider choosing’ part. As my AI helper said, it’s “a shortlist of UK stocks to investigate further (not recommendations!)“.
What did it say it’s looking for? A good dividend yield made the number one spot — but a very high yield might signal a risk of cuts ahead. Next up is good cash flow, suggesting dividends should be covered by earnings and by free cash.
And then long-term stability, a mature business model, a solid track record of paying dividends even through an economic cycle. Add those to the guidelines and AI gets a thumbs-up from me so far.
The top pick
The actual stock suggestions? Leading the pack comes Legal & General (LSE: LGEN), currently on an 8.9% forecast dividend yield.
AI users should always recheck any figures. In this case it reported a yield of about 8%. That’s probably just a bit out of date, as the Legal & General share price has fallen a little since September, pushing up the dividend yield.
But beware. Asking similar questions, I occasionally get figures that are simply wrong — not just slightly inaccurate or outdated, but completely hallucinatory!
I like it
As it happens, Legal & General’s near the top of my passive income ISA candidates list. If I hadn’t already bought some Aviva shares in the same sector — also suggested by ChatGPT — I’d have some for sure. And I’m still thinking of buying some.
Forecasts suggest the dividend won’t be covered by earnings this year. But they suggest cover should reach around 1.2 times by 2027. And the dividend hasn’t been cut in the past decade. It looks good to me.
I think the biggest danger with Legal & General is that it’s in a cyclical business, more open to economic risk than most. The share price also hasn’t done much, and can be volatile. But it’s one for passive income investors with a horizon of a decade or more to consider, I reckon.
Others coming through include M&G, British American Tobacco, Taylor Wimpey… all widely liked by long-term dividend investors. It’s as if ChatGPT was reading everything investment writers have to say and putting it all together. Oh, hang on…
AI, or not AI?
So can AI chatbots, or large language models (LLMs), help with our investing decisions? Providing we understand what they can and can’t do, it’s a cautious ‘yes’ from me.
An LLM’s not capable of original analysis. And no matter how personal the chatty style might be, it has no opinions. It can’t have, because it’s just a load of — admittedly cleverly-designed — code running on a computer and matching text patterns.
ChatGPT searched a lot of analysis and opinions originally written by humans, and summarised it all — like I regularly do, but many times faster. But whether some of those human opinions are worth summarising is open to question.
The real value to investors is the fast initial data processing with the ability to first find the data. But it really needs to be checked. This means our actual investment choices still need real brains.
