After spending hours sifting through the FTSE 100 to find Britain’s best dividend stocks, I decided to call in some artificial help.
I was curious to see what generative artificial intelligence chatbot ChatGPT would come up with, but was instinctively suspicious. Wouldn’t it just pick the five biggest yielders and be done with it?
I’m not privy to its algorithms but it’s clearly a bit more sophisticated than that. Although I wouldn’t describe any of its picks as a surprise. They’re all big blue-chips with mighty yields. So which passive income faves did my new ‘bot pal come up with?
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Are these really the UK’s best income shares?
Well knock me down with an artificial feather but cigarette maker British American Tobacco was on the list. I’ve just finished writing an article highlighting its fabulous trailing yield of 7.95%.
This isn’t a one-off as ChatGPT pointed out: “The company has a history of consistent dividend payments, making it appealing to income-focused investors.”
British American Tobacco has survived the regulatory onslaught on cigarettes by building market share, sweating its brands and pursuing smokeless alternatives. Even its shares have picked up, climbing 25% in the last year. I can’t really argue with this.
It’s impossible to argue with my robot buddy’s next dividend pick either: HSBC Holdings (LSE: HSBA). I don’t hold the Asia-focused bank, but it’s at the top of my Buy list for when I have some cash.
ChatGPT says: “As one of the world’s largest banking institutions, it has a track record of regular dividend distributions.”
The current yield is 6.26% while the HSBC share price is up 22% over the last year. Yet it’s still cheap, trading at just 8.42 time earnings.
HSBC has challenges. Listed in London but generating the bulk of its profits in Asia, it’s tangled up in US-China trade wars. It’s hard to see how that will play out as President-elect Donald Trump talks of tariffs. New CEO Georges Elhedery is responding by splitting the group into Eastern and Western units.
I think it’s a brilliant income stock
HSBC has also been lavishing investors with share buybacks. They totalled £7bn in full-year 2023 financial year. Nice work, ChatGPT.
It also picked out mining giant Rio Tinto, which has a bumper trailing yield of 7.43%, although as my AI chum warned: “Dividend payments can be influenced by commodity price fluctuations.”
How true. I’ve suffered at the hands of Glencore lately, so won’t be buying Rio Tinto. It’s still a top dividend stock though and cheap at 8.03 times earnings.
I won’t buy its next suggestion either, energy giant Shell, but that’s purely because I hold rival BP. Shell’s yield is relatively modest at 4.6% but it’s also been engaging in share buybacks.
The one chatbot pick I do hold is Legal & General Group. It has a bumper yield of 9.29%. So it turns out that I’m the one chasing the big yielders, not AI. Perhaps my algorithms need a reset.
ChatGPT says Legal & General “is known for its consistent dividend payments”. I’d add it’s also known for its underperforming share price, but I’m hoping that will change.
Even though I can’t fault ChatGPT’s stock pick, I’ve still got doubts about its selection process. But I’d happily buy any five of these FTSE 100 dividend heroes today.
