I asked ChatGPT for the best stocks to earn a second income and it recommended…
Earning a second income in the stock market is a relatively straightforward process. Investors can just snap up some shares in a dividend-paying enterprise and then just wait for the money to roll in. The challenge is knowing which income stocks are actually worth buying.
Sure, there are metrics like the dividend yield that can be helpful in an initial search. But this measure of payout doesnât really give much insight into the long-term sustainability of dividends. Not to mention that stock prices also have a habit of moving… and not always going in the right direction.
With that in mind, I decided to explore what artificial intelligence (AI) algorithms had to say about the matter. And when I prompted ChatGPT about the best UK stocks to buy for a second income, it produced an interesting result.
Boring could be best
The FTSE 100 is filled with top-notch dividend-paying stocks, so itâs not entirely surprising that ChatGPT made four recommendations, all of which are from the UKâs flagship index:
- Unilever (LSE:ULVR)
- GSK
- National Grid
- Shell
Whatâs interesting is that none of these have particularly high dividend yields. In fact, the largest payout comes from National Grid at 4.8%. And that pales in comparison to the payouts of some FTSE 100 stocks like M&G at 9.9%.
However, as previously mentioned, a high yield isnât great if the dividends canât keep flowing. And a common theme among all these businesses is that they each have steady cash flows.
Unileverâs vast portfolio of consumer products can be found in almost every supermarket, and GSKâs life-saving drug portfolio is likely not going to fall out of fashion. Meanwhile, the constant rising demand for modern energy infrastructure is going to keep National Grid busy, while oil, gas and renewable energy will likely do the same for Shell.
So it should come as no surprise that each of these businesses has an extensive history of paying dividends every year for decades. And that includes during disruptive periods like the pandemic.
Boring is not risk-free
Letâs take a closer look at Unilever. During 2024, the group delivered respectable results with a 4.2% boost to underlying sales and a 170 basis point expansion of operating margins. Yet the stock actually fell by almost 10% a few days following the report. And zooming out, Unilever shares have actually massively underperformed over the last five years versus the FTSE 100 index.
A big concern is the limits of Unileverâs pricing power. Its branded products are already priced at a premium, and with further hikes, sales volumes may start to suffer as consumers simply switch to cheaper alternatives. This fear was only intensified when managementâs outlook for 2025 included the statement: âWe anticipate a slower start to 2025 with subdued market growth in the near termâ.
Of course, this isnât the first time Unileverâs branding power has been tested. And so far, the company has managed to land on top, suggesting itâs worthy of a closer look, in my mind.
The other businesses on this list also have their own set of challenges to overcome. And investors need to carefully investigate the threats as well as potential rewards when exploring investment opportunities, even when using tools like ChatGPT.
The post I asked ChatGPT for the best stocks to earn a second income and it recommended… appeared first on The Motley Fool UK.
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More reading
- Prediction: Unilever to outperform the FTSE 100 over the next 12 months
- I just sold Unilever and bought this bombed-out UK stock. Am I mad?
- 3 things to look at when buying shares for a SIPP!
- What on earthâs going on with the Unilever share price?
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended GSK, National Grid Plc, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
