Can artificial intelligence (AI) offerings like ChatGPT support us choose stocks and shares for our passive income ISAs?

I asked him to generate some ideas for me. There is also a selection of UK dividend stocks to consider choosing from. I emphasize the “consider your choice” part. As my AI helper said, it is “a brief list of UK stocks to investigate further (not recommendations!)“.

What said he was looking? A good dividend yield came first, but very high profitability may signal a risk of cuts in the future. Next up is good cash flow, which suggests dividends should be covered by profits and free cash flow.

And then long-term stability, a mature business model, a solid track record of dividend payments even throughout the economic cycle. Add them to the guidelines and AI gets a thumbs up from me so far.

The best choice

Actual stock suggestions? The leader of the pack is coming Legal and general information (LSE: LGEN), currently forecast for a dividend yield of 8.9%.

AI users should always double-check any numbers. In this case, profitability of approximately 8% was recorded. This is probably a bit out of date, as the Legal & General share price has dropped slightly since September, which has increased the dividend yield.

But be careful. When I ask questions like this, I sometimes get data that is just wrong – not just slightly misleading or out of date, but completely hallucinatory!

I like it

Legal & General happens to be at the top of my list of passive income ISA candidates. If only I hadn’t bought some already Aviva shares in the same sector – also suggested by ChatGPT – I would definitely have some. And I’m still thinking about buying it.

Forecasts indicate that the dividend will not be covered by profits this year. However, they suggest that by 2027, coverage should reach around 1.2 times. The dividend has not been cut in the last decade. I think it’s good.

I think the biggest danger with Legal & General is that it runs a cyclical business and is more susceptible to economic risk than most. The share price has also not changed much and may be volatile. However, I think this is an option for investors generating passive income, with a horizon of ten or more years, to consider.

Others that pass include: M&G, British-American tobacco, Taylor Wimpey… all widely favored by long-term dividend investors. It’s as if ChatGPT read everything investment book authors have to say and put it all together. Oh, wait…

AI or no AI?

Can AI chatbots or gigantic language models (LLM) support make investment decisions? Provided we understand what they can and cannot do, that’s a cautious “yes” on my part.

The LLM is unable to conduct original analysis. And no matter how personal the chatty style may be, there are no opinions in it. It can’t, because it’s simply a collection of – admittedly cleverly designed – code that runs on a computer and matches text patterns.

ChatGPT has sifted through many of the analyzes and opinions originally written by people and summarized them all – just like I do regularly, but many times faster. However, whether some of these human opinions are worth summarizing is an open question.

The real value for investors is the rapid pre-processing of data with the ability to find it first. But this really needs to be checked. This means that our actual investment choices still require real brains.