I asked ChatGPT for the top 3 dividend stocks to buy for retirement
I don’t think we should depend on ChatGPT for anything. And this is particularly true for when it comes to investing. However, can the AI bot point us towards stocks worth researching further?
As a bit of fun, I decided to ask it for the top three dividend stocks to consider buying for retirement. Interestingly, all three it came up with were from the FTSE 100.
- British American Tobacco
- Legal and General
- National Grid (LSE: NG)
Let’s look at one of these in more detail.
Dividend growth king
I didn’t actually need an AI bot to tell me that power provider National Grid has solid income credentials. First, it boasts a 4.2% dividend yield. This isn’t the biggest in the UK market’s top tier. In fact, it’s lower than the yields of both Legal & General (9.1%) and British American Tobacco (6.2%). But it’s still well above the FTSE 100 average as I type (3.1%).
One reason for this is that utility firms benefit from stable demand. The fact that we all need constant access to electricity and gas means firms in this sector can usually return a healthy proportion of profit to investors.
Second, National Grid has a great history of growing its cash distributions. This consistency might be particularly appealing for anyone thinking about building a passive income stream to supplement the State Pension or any other cash they regularly receive in retirement.
Not so fast
As good as all of the above is, it’s worth remembering that National Grid is exposed to regulatory risks and carries a huge amount of debt on its balance sheet. So investors must be comfortable knowing that income’s never nailed on. Dividends can and do get cut (or completely cancelled) if a business fails to perform or has need for that money elsewhere.
The latter of these is particularly relevant for National Grid. Despite the aforementioned history of regularly hiking its payouts, the £57bn-cap actually reduced its total dividend in the last financial year by 18%. This was to raise cash to pay for upgrading its networks over time. Will it be a one-off? Again, we need to be wary of assuming it will.
Another thing worth commenting on (and not picked up by ChatGPT) is the valuation. Right now, National Grid stock changes hands at a price-to-earnings (P/E) ratio of 15. That’s roughly around the long-term average in the FTSE 100. However, it’s rather expensive among UK-listed utility companies.
Given that the share price has climbed by 20% or so in 2025 so far, perhaps we shouldn’t be shocked by this price tag. However, I would say we also shouldn’t be surprised if we see a few pullbacks in the near term.
A good start but…
Regardless of whichever stocks ChatGPT came up with in response to my question, relying on just a trio of income stocks for meeting income needs in retirement is risky.
The fact that National Grid, Legal & General and British American Tobacco are all very different businesses is a good start, to be sure. But a sufficiently diversified portfolio probably requires adding a few more shares to the mix.
Fortunately, the UK market isn’t short of options for dividend hunters. But I strongly suspect ChatGPT won’t find those flying under the radar.
The post I asked ChatGPT for the top 3 dividend stocks to buy for retirement appeared first on The Motley Fool UK.
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More reading
- My top 3 FTSE 100 shares for passive income investors to consider
- National Grid shares keep the lights on for passive-income investors
- £300 a month invested in a Junior SIPP could grow to £581,240 by the time a child reaches 65!
- 2026 could be the year of interest rate cuts. How might the UK stock market react?
- How does the price-to-value proposition look in National Gridâs share price after its pre-H1 results update?
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. and National Grid Plc. 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.
