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The increase in ChatGPT usage over the past year has been huge. Although investors should be careful not to base their decisions exclusively on artificial intelligence (ai) sources, I thought it would be interesting to see which passive income stocks I would select to consider buying now. The result might surprise some.
Stock selection
ChatGPT was the first to inform me of a disclaimer, noting that dividend yields are subject to change. He told me to do extensive research or consult with a financial advisor before making investment decisions. So far, so good.
He then outlined the case for buying British American Tobacco (LSE:BATS). He FTSE 100 Shares are up 25% over the past year, yielding 7.95%. As such, it is one of the highest performing options in the entire index.
The generous performance was one of the main reasons the chatbot suggested it could be a good chunk of passive income. Additionally, he noted that the company operates in an area that produces strong cash flow. It is also considered a defensive action.
Cash flow should allow dividends to be paid easily. As for the defensive nature of the stock, it could help cushion share price declines during a market downturn. Steady demand for the products could help maintain the dividend even in difficult times.
The other side of the coin
Surprisingly, he didn't actually point out any material risks, simply saying that “Regulatory risks in the tobacco sector are a factor to be weighed.”
I'm a little surprised you haven't expanded more on the risks associated with the company. In my opinion, the risks are the main reason why I wouldn't say British American Tobacco is the best income share to buy now.
The December trading update noted that full-year performance was being driven by New Categories innovation. This includes vaporizers and other electronic cigarettes. It is trying to move away from traditional tobacco sales as there is a global push by governments to curb smoking.
However, this trend of lower demand for tobacco has remained intact for several years, hampering the business's revenue growth. For example, by 2024 revenues of £26.28 billion are projected. In 2019 it was £25.88 billion. So the company hasn't really grown in the last five years.
human wisdom
While some wouldn't see this as a huge risk, I think it's a big enough concern to not give it the title of being the top earning stock. I prefer to choose a slightly underperforming company that is growing its revenue and profitability, in an industry that is growing in size. In my opinion, this provides a more sustainable source of income in the future.
ChatGPT provides more objective information, so I understand why you chose this action. But when I add my subjective view of the sector's prospects, it makes me stop and think. This shows that even with the best ai in the world, the need for humans will still be in the investment process for a while yet!
