Dividend stocks can allow investors to earn passive income from the stock market. Not every FTSE share pays a dividend, but there’s a vast range to choose from.
It’s not just the case of buying the one with the highest yield. Rather, there are lots of factors to take into account. Yet I thought it would be interesting to ask ChatGPT to pick me the best one from an objective viewpoint. Here’s the answer.
A logical choice
To begin with, the AI-bot tried to avoid giving me one answer. It spoke about how the optimal FTSE dividend stock depends on your individual financial goals, risk tolerance, and investment horizon. All of this is true. However, after following up with some more questions, I was eventually pointed to Legal & General (LSE:LGEN).
It cited three main reasons for directing me to this particular FTSE stock. The first related to the dividend yield. At 8.66%, I make it the third highest-yielding stock in the entire FTSE 100 right now. Even though a high yield doesn’t make a share the best, it’s a key factor to include with everything else.
The next point made was that Legal & General has a strong balance sheet. The latest report showed a solvency ratio of over 200%. Put another way, the business is financially stable. Given this fact, the dividend doesn’t appear to be under any threat of being cut. This makes the income sustainable, which is a big tick when trying to find the best idea out there at present.
Finally, ChatGPT noted the consistent dividend growth over time. After doing some research, I found it has had a 7.73% dividend growth rate over the past decade. It’s hiked the dividend payment consecutively for the past three years.
The other side of the coin
It’s true that the share price has fallen 1% over the past year. Despite all the good reasons to buy the stock, ChatGPT didn’t provide me with any counterargument regarding the risks involved. For example, as a pension and insurance provider, the business is sensitive to bond yields and interest rates. So any sharp move higher or lower in interest rates can impact investment income, with higher volatility not ideal.
I think ChatGPT did well in the selection, but I’m not sure I’d cite Legal & General as the best FTSE dividend stock right now. The insurance sector’s mature, so I’d prefer to look for a stock in a growing sector that has the potential to increase payments significantly in the years to come.
For example, Greencoat UK Wind has a yield of 9.66%. Operating in the renewable energy sector could be a real growth space that should support the company over the next decade. That’s why I’m thinking about adding it to my portfolio.
So even though I tip my hat to AI, I still think active human stock-picking and experience has a lot to be said for when trying to build a portfolio.
This post was originally published on Motley Fool
