I asked ChatGPT for the best FTSE 250 stocks for passive income, with these results!

When it comes to finding options for passive income, an investor has to consider hundreds of stocks. Yet simply filtering for the highest dividend yield doesn’t always reveal the full picture. I decided to ask ChatGPT for the two best options right now to see if it could look beyond the numbers.

REIT on the money

The first stock selected was Assura (LSE:AGR). This real estate investment trust (REIT) specialises in healthcare properties. It owns and manages over 600 primary care facilities across the UK, including GP surgeries, diagnostic centres, private hospitals, and ambulance hubs.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Over the past year, the share price has risen 27%, yet it still boasts a 6.68% dividend yield. ChatGPT stated it liked the business for income because, as a REIT, it has to pay out at least 90% of rental income to shareholders. Furthermore, Assura’s long-term, inflation-linked leases underpin stable cash flow, which the AI bot believes is ideal for income.

I agree with these points, but do have some concerns. Even though most leases are inflation-linked, most income comes from NHS-backed contracts. These are often capped or negotiated slowly, meaning rent uplifts can lag inflation. Further, it’s a risk to have such a concentrated amount of revenue linked in some way to government funding.

It’s not that I think the stock is under pressure for a dividend cut. But I wouldn’t rank it as one of the best FTSE 250 stocks for income right now.

A lender with large potential

The second pick was OSB Group (LSE:OSB). The stock is up 11%, with a dividend yield of 6.75%. OSB focuses on niche lending segments, notably buy-to-let, along with specialist residential and development finance. At its core, OSB makes money by adding a spread on top of the rate it can borrow at versus the interest rate it charges clients on their loans.

ChatGPT picked the stock partly based on valuation. With a price-to-earnings ratio of 6.03, it could be undervalued. In this case, an investor could buy now, and then if the share price rises (reducing the dividend yield), they would gain from this capital appreciation. Another point is the recent rebound in net profit margin, which reinforces dividend sustainability.

I’m all about sustainable dividends and agree that OSB appears in a good position. The CEO recently commented that “the group is well positioned to deliver on its guidance”, which should reflect further dividend per share growth.

However, it’s worth flagging that a business built on lending is always inherently risky. A higher default rate can materially impact the company and damage its reputation.

In spite of this, I agree with the pick for OSB Group as a stock worth considering but disagree with Assura. To me, this highlights the importance of always doing your own research!

The post I asked ChatGPT for the best FTSE 250 stocks for passive income, with these results! appeared first on The Motley Fool UK.

More reading

• FTSE 250 stocks are rising — here are 2 that could benefit from the recovery
• With 7% yields and low payout ratios, these FTSE 250 dividend shares could be hard to ignore

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

See author's posts