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I think there are some really interesting passive income opportunities in the stock market at the moment. But when I asked ChatGPT for some ideas about what it thought, the results surprised me.
It offered me a number of relatively uninspiring ideas. Two of them though, stood out for entirely different reasons.
Altria
One of the names it suggested to me was tobacco firm Altria (NYSE:MO). On the face of it, that sort of makes sense – the stock has a 7% dividend yield and there aren’t many S&P 500 names in that category.
The trouble is though, the company’s facing some pretty big risks. Its business is exclusively focused on the US, where the number of smokers has been falling sharply.
To be fair, raising prices and buying back shares have kept earnings per share drifting higher as sales have stagnated. But I’m not convinced this is a long-term solution to a declining customer base.
Other tobacco companies – such as British American Tobacco and Philip Morris International – have some promising nicotine pouch products that might offset this. But this isn’t really the case with Altria.
Altria and Philip Morris used to be one company. The latter however, acquired Swedish Match in 2022 (after their separation) and owns the US rights to Zyn – the nicotine pouch product as a result.
As ChatGPT pointed out to me, a 7% dividend yield could return a lot of passive income in the short term. But I think investors have much better opportunities available elsewhere.
Microsoft
At the other end of the spectrum, ChatGPT also suggested Microsoft (NASDAQ:MSFT). Now, that stock fell 10% in a day earlier this week, but the dividend yield’s still only 0.84%.
Microsoft is the opposite of Altria in many ways. It’s a business with a much more positive long-term outlook and it has a number of potential growth opportunities available.
The big risk with the company is that it might be in the process of wasting a lot of money. It’s investing heavily in artificial intelligence (AI) data centres and there’s no guarantee that will pay off.
To some extent, investors can’t do much but trust that Satya Nadella knows what he’s doing. And I do think the CEO has shown a lot of outstanding leadership qualities.
Even the best operators make mistakes. But even beyond AI, Microsoft has an extremely strong position in its enterprise software division that makes it incredibly difficult to compete with.
I think there are good reasons to look seriously at Microsoft shares after the latest decline. But a dividend yield below 1% means I don’t see a case for buying it from a passive income perspective.
Dividend stocks
There’s more to income investing than just looking at dividend yields. Altria’s one of the highest in the S&P 500, but I think there are a lot of risks for the company in the near future.
Microsoft looks like a more promising overall investment to me. But at today’s prices, it would take a huge cash outlay to generate meaningful passive income from the stock.
In other words, I’m not that convinced by ChatGPT’s latest suggestions for dividend investors in the month ahead. I think there are some real opportunities right now, but not these ones.
