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Much has been written about the ability of various artificial intelligence (AI) ‘things’ (a technical term, I think) to pick FTSE stocks.
I have avoided such interactions, with dark memories of the HAL computer in 2001: A Space Odyssey still looming large.
Nevertheless, in the broader interests of mankind, I asked the ChatGPT beast for its best three FTSE stocks to generate retirement income.
So, what was its answer?
Top of the list
The number one pick was Phoenix Group Holdings (LSE: PHNX), with HAL – sorry, ChatGPT — underlining its “very generous yield”.
Indeed, the stock’s current 8.1% dividend yield compares favourably to the FTSE 100’s 3.1% and the FTSE 250’s 3.5%.
The AI also cited Phoenix’s improving cash generation and capital strength as major positives.
It was not short on citing earnings risks either. These were given as “changes in regulation, interest rates, inflation that can impact profitability and capital requirements”. I agree.
However, it did not mention analysts’ forecasts that its earnings will soar 106% a year to end-2027. And it is growth here that powers dividends higher over time.
However, I have written about Phoenix Group many times. So perhaps the chatbot was subtly feeding this back to me to get on my good side. To what end? Perhaps we will never know.
Houston, we have a problem
I suspect it may have done the same for British American Tobacco (LSE: BATS) – its second pick.
Interestingly, though, it does not appear to factor in the latest share price news into its dividend yield reckoning, as its human counterparts would.
The tobacco and nicotine substitute products manufacturer paid a 235.52p dividend in 2024. However, given a major rise in its share price this year, the yield has dropped to just 5.8%. This is because a share’s dividend yield moves in the opposite direction to its price.
This is below my 7%+ dividend yield requirement for my retirement income stocks. It reflects the extra risk in investing in shares over taking no risk at all. And the current ‘risk-free rate’ (the 10-year Gilt yield) is 4.6%.
Nonetheless, ChatGPT’s view that its key earnings risks are regulatory tightening and changing consumer habits looks well-founded to me.
Computer says…
Last on the AI’s list was electricity and gas transmission giant National Grid.
ChatGPT’s rationale for the strangest of its three picks is that it has “relatively stable demand and regulated frameworks”.
I think I may have veered into HAL’s online dating profile here. It certainly does not specifically address how its dividend yield will look in the coming years.
In fact, it looks uninspiring at 4% and projected to stay around that level until 2028 at minimum.
It also skirts around the £60bn in government-mandated investment in power infrastructure required from 2024/25 to 2028/29. Instead, ChatGPT vaguely highlights “large capital expenditure” in this bracket.
I’m sorry, ChatGPT, I’m afraid I can’t do that
ChatGPT produced some food for thought in its suggestions, but they are only that.
They do not reflect a broad understanding of markets or investment that humans can attain.
Crucially as well, ChatGPT lacks the razor-edged focus that having one’s own money at risk brings with it.
So, I will not be pursuing ChatGPT’s suggestions. Rather, I am looking at several top-flight, ultra-high-yielding FTSE shares.
