Can ChatGPT really build the perfect passive income portfolio? I put it to the test

Is there such a thing as the perfect passive income portfolio? Naturally, thatâs something all income investors strive for — but can artificial intelligence (AI) help to make it happen? I decided to put that theory to the test.

Lately, generative AI systems like ChatGPT have been in the news for many reasons — some good, some not so good. One notable occurrence was the unchecked publishing in the Chicago Sun of a summer reading list that contained made-up books. The event highlighted the inherent limitations of AI and the critical need to fact-check its responses.

Fortunately, when I asked it to suggest the best stocks for a passive income portfolio, it didn’t just make up companies. But did it make good selections?

Yes and no.

A mixed bag

I began by stating that I’m a British investor aiming for a steady income stream when I retire in 20 years. It responded with an initial statement about the importance of sustainable dividends, strong fundamentals and diversification.

So far, so good.

It then provided the following list of stocks for various reasons: Shell, Rio Tinto, Legal & General, Lloyds, Segro, GSK, Unilever, Rolls-Royce, Smiths Group, National Grid and Vodafone.

With the exception of Rolls-Royce, the majority of these are either strong dividend payers or defensive stocks. Personally, I’m against Shell and Rio Tinto for environmental reasons, and I question the inclusion of Segro and Smiths Group.

But I was most surprised by the exclusion of one of my favourite FTSE 100 dividend shares: Aviva (LSE: AV.)

The best of both worlds

What I like most about Aviva is that it delivers both growth and dividends — a rare combination. Since May 2020, its price has grown 160%, representing annualised growth of 21% a year! And that’s on top of the average 6% yield it’s held throughout that time, equating to total returns of around 26% a year.

Plus, dividends have been increasing at a rate of 18.16% a year for the past five years. But as we know, past performance is no indication of future results.Â

So can the company keep up this winning streak?

Strong fundamentals… but risk remains

I see no immediate reason Aviva can’t keep performing well, but its price is now almost 30 times earnings. That limits the potential for further growth as the high price might deter new investment. It also faces certain risks, including weakened profitability from falling interest rates and high inflation that could increase claims.

But so far, things are looking good.

In 2024, operating profit increased 20% to Â£1.77bn and cash remittances climbed to Â£1.99bn, representing a 5% year-on-year growth. General insurance premiums rose 14% and sales of insurance, wealth and retirement products grew 22%.

Helping to drive home its aggressive expansion goals, it recently acquired rival insurer Direct Line — a move that will enhance its position in the UK motor and home insurance market.

Overall, Aviva looks to me like a company going from strength to strength. Yes, it still faces risks and it may struggle to continue its recent growth trajectory in the short-term. But as a long-term addition to a passive income portfolio, I think it’s a promising stock that’s well worth considering.

The post Can ChatGPT really build the perfect passive income portfolio? I put it to the test appeared first on The Motley Fool UK.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

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See the full investment case

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Mark Hartley has positions in Aviva Plc, GSK, Legal & General Group Plc, Lloyds Banking Group Plc, National Grid Plc, and Unilever. The Motley Fool UK has recommended GSK, Lloyds Banking Group Plc, National Grid Plc, Rolls-Royce Plc, Segro Plc, Unilever, 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.