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The £20,000 Stocks and Shares ISA contribution limit will reset on 6 April, and I’m eyeing up FTSE 100 shares to buy for my portfolio. While brainstorming ideas, I was curious to know what artificial intelligence (AI) thinks is the crème de la crème from the Footsie right now.
ChatGPT is the world’s most popular AI chatbot, but it’s prone to making mistakes. I’d never accept its stock market recommendations at face value. Nonetheless, there’s always some merit in a different investing perspective — even a robotic one!
Encouragingly, the FTSE 100 stock ChatGPT named looks like a solid choice for investors to consider buying from my perspective.
A passive income heavyweight
The dividend stock my AI buddy championed is the asset management, life insurance, and pensions giant Legal & General (LSE:LGEN). With a strong history of dividend growth, it’s a popular pick for many UK income-focused investors.
Legal & General shares currently offer the third-highest yield in the FTSE 100 index, at a mammoth 8.74%. Disappointingly, ChatGPT wrongly informed me that today’s yield was lower at just 6.7%. This figure’s actually the stock’s average yield over the past decade. As I said, it’s wise to exercise caution when consulting unreliable AI-generated information for investment ideas.
The company’s forward-looking guidance is promising. The board hopes to reward shareholders with over £5bn in the coming three years. This will be sourced from a £500m share buyback, £3.6bn in dividend payouts, and the sale of the firm’s US insurance business for £1.8bn.
Macroeconomic changes could aid Legal & General’s ambitions. The UK’s CPI inflation rate fell to 2.8% in February, fuelling hopes for further Bank of England interest rate cuts.
Looser monetary policy would make cash and bonds less attractive than high-yield FTSE 100 shares like Legal & General. It could also boost the group’s assets under management (AUM). That’s good news for the dividend as well as potential growth in the Legal & General share price.
Risk and reward
My AI companion showed awareness of the risks involved with investing in Legal & General shares. One potential challenge it cited was “pension reform“.
Following a spring statement concentrated on welfare cuts, the Institute for Fiscal Studies (IFS) believes there’s a good chance wealthy pensioners could be Chancellor Rachel Reeves’ next target in the autumn budget. Changing pension tax relief rules might be a tempting source of fiscal savings.
This could be damaging for the Legal & General share price since it may hurt demand for the company’s retirement products. It’s worth monitoring Treasury rumours on this topic. Even mere speculation can have real-world consequences regarding how individuals plan for their financial futures.
Nevertheless, I think the potential rewards offered by the stock are sufficiently attractive despite these risks. A forward price-to-earnings (P/E) ratio slightly above 10 means the shares offer good value today, in my view. Furthermore, a 6% rise in FY24 operating profit to £1.62bn indicates the group’s maintaining a strong growth trajectory.
Overall, I think ChatGPT’s FTSE 100 selection is a solid one. But, I’m reminded of a phrase my maths teachers often told me at school: “show your working!”
Given the AI chatbot’s habit of producing false data, it has a long way to go in providing credible stock market analysis.
