I asked ChatGPT for the ‘ultimate’ income stock. Here’s what it said…

Not surprisingly, when I asked ChatGPT to come up with the ‘ultimate’ income stock, the software pointed out that there isn’t a single dividend share that will suit everyone. Instead, it said there are plenty of candidates to choose from and that it’s necessary to consider the history, consistency and sustainability of payouts.

When pushed to give me the names of some of these companies it warned that the list did not comprise recommendations but “classic examples of stable, dependable dividend payers”.

What did it say?

The software pointed out that Procter & Gamble and The Coca-Cola Company have remarkably increased their dividends for over 60 consecutive years. It then identified types of stocks — such as consumer staples and utilities — that are, generally speaking, known for their above-average yielding shares.

Closer to home, it said British American Tobacco (“long-established, high-yield dividend payer”), Legal & General (“strong dividend yield and solid dividend history”) and National Grid (“stable cash flows and reliable dividends”) were examples of “widely cited” income stocks.

Again, it stressed these were “not recommendations”. At first glance, I can see why these three made the list. But then ChatGPT let itself down.

Oh dear!

That’s because I don’t think even the most loyal shareholders in Vodafone and SSE would claim they have invested in reliable income stocks. And yet these were among the five income shares identified.

In May 2024, the telecoms giant cut its payout in half. This followed a 50% reduction in 2019. As for the UK’s largest renewable energy provider, over the past 12 months, its dividend was 33% lower than it was for its March 2023 financial year.

The inclusion of these two is a valuable reminder that dividends are never guaranteed. It also highlights that relying on a computer program to identify suitable investments isn’t a good idea. And that there’s no substitute for human-led research.

One I’ve chosen

Even though ChatGPT didn’t identify J Sainsbury (LSE:SBRY) as a top income share, this human being decided to add the grocer to my ISA earlier this month. In my opinion, others could consider the stock too.

I took advantage of a pullback in the share price following the announcement that the Qatar Investment Authority (QIA) was to reduce its stake from 10.5% to 6.8%. The Qatari’s might be looking to book some profit. Alternatively, they could be fearful of increased competition and smaller profit margins.

However, the QIA has been selling shares for a while now. It doesn’t appear to be anything to be worried about. Indeed, in November, Sainsbury’s upgraded its full-year profit forecast.

According to Kantar, its share of the British grocery market was 16% for the 12 weeks ended 30 November. This puts it comfortably in second place. It hasn’t been higher since – at least – February 2020. Clearly, the group’s doing something right in a very competitive market.

However, it’s the passive income opportunity that interests me the most. Based on dividends declared over the past 12 months, the FTSE 100 retailer’s yielding (12 December) an impressive 7.7%. But this includes a special one-off payment following the group’s decision to exit the banking market. Even so, by excluding this, the yield’s still a healthy 4.3%.

But as much as I like Sainsbury’s, I’m aware that it’s just one high-yielding UK share that’s currently available.

The post I asked ChatGPT for the ‘ultimate’ income stock. Here’s what it said… appeared first on The Motley Fool UK.

More reading

• 3 UK shares to consider for the long term
• After Qatar cuts its stake in Sainsbury’s, is its share price now a great short-term risk/long-term reward play?
• 2 British income shares to consider before the Christmas boom
• A rare buying opportunity for a defensive FTSE 100 company?
• Down 9%: is Sainsbury’s share price too cheap for me to pass up now?

James Beard has positions in Legal & General Group Plc and Vodafone Group Public. The Motley Fool UK has recommended J Sainsbury Plc, National Grid Plc, and Vodafone Group Public. 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.

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