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I’ve long dreamt of generating passive income for retirement through investing in dividend shares. My plan is to build a portfolio of sustainable FTSE 100 income stocks that yield between 6% and 8%. I already hold several and have my eye on a few more but, for fun, I thought I’d test ChatGPT’s stock-picking skills.
As a risk-averse investor, I don’t just seek advice willy-nilly from anybody. To that end, I realise it’s unwise to expect an AI chatbot to accurately assess complex financials. I’ve read about their tendency to make up facts and confuse critical data, getting dates and names wrong or misattributing facts. So I’ll admit, I went in skeptical but with an open and curious mind.
The results
My question was simple: If you were a British investor aiming to build a passive income portfolio with an average yield of 8%, which 10 stocks would you pick?
It said: Legal & General, Phoenix Group, M&G, British American Tobacco, Lloyds, Taylor Wimpey, Shell, GSK, Imperial Brands and Persimmon (LSE: PSN).
From what I can tell, it simply picked 10 random stocks from popular listicles like ‘5 top dividend shares for November 2025’. There’s little diversification and no definitive strategy I can identify. Needless to say, that’s no way to build a portfolio.
Not without benefit
Still, the exercise wasn’t entirely wasted as the inclusion of one stock caught my eye. While the other names seem relatively obvious to me, Persimmon stands out as a less common choice. Was I missing something?
Persimmon’s 4.6% yield wouldn’t do much to help boost my goal of an 8% average. However, it’s still substantially higher than the UK market average, making it an attractive stock to consider for income. The company paid a dividend of 60p per share in 2024 with sufficient earnings coverage of 1.54 times. Management’s committed to disciplined capital allocation, distributing excess cash through dividends or buybacks only when financially prudent.
Recent operational improvements are material: 2024 revenues grew 15% to £3.2bn and pretax profit rose 10% to £395m, ahead of guidance. Moreover, its number of completed builds increased 7% to a total 10,664 homes. Maybe this is a dividend gem I’ve overlooked?
Certainly, some brokers think so. Morningstar rates Persimmon a 5-star undervalued stock with a fair value of 2,300p versus current trading around 1,317p.
Final verdict?
Persimmon’s recent results are impressive and its yield, while moderate, is well-covered and sustainable. That’s all well and good — but with a share price down 55% in five years, is it at risk of falling further?
Interest rate sensitivity is a key challenge for the housing market as higher borrowing costs constrain buyer affordability. We saw this when it slashed its dividend in 2023 as profitability collapsed during the mortgage crisis. Another downturn could risk further cuts.
But interest rates are tipped to fall in 2026, which could be a huge boost for UK housing. Subsequently, Persimmon shares are looking increasingly attractive. However, for property sector investors seeking a higher-yielding option, a real estate investment trust (REIT) like Supermarket Income may be more appealing.
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So while ChatGPT might be good at putting together lists, I’m not sold on its stock-picking skills. Besides those it chose, there’s a wealth of other attractive income options on the FTSE 100 and FTSE 250.
