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I’m always on the lookout for passive income opportunities. And I’m interested in ways artificial intelligence (AI) can help make things easier, faster, and more efficient.
With that in mind, I asked three of the leading chatbots for their ideas about the best passive income opportunities. The results were interesting – but not that useful…
What they said
ChatGPT was the only one to give me an answer at all. Gemini said it isn’t allowed to recommend stocks and Claude said it doesn’t have access to live market data.
ChatGPT however, did give me a name. It actually gave me a few, but the stock at the top of the list was Johnson & Johnson (NYSE:JNJ) – a popular name with dividend investors.
It highlighted a few key points, including the firm’s strong record of rising payments and its strong competitive position in a pretty resilient market. But it missed one important thing: the stock comes with a 2.75% dividend yield. And while ChatGPT rightly noted that this isn’t particularly high, it didn’t realise that I won’t even get 2.75% by buying the stock.
Dividend taxes
Johnson & Johnson is a US business and I’m a UK investor. That means any distributions I might receive from the company are subject to a 30% withholding tax. This is reduced to 15% with a W-8BEN form. So by the time the dividends hit my account, what I’ll get is more like 2.35% – and this highlights something important.
Without knowing everything about my financial situation, it isn’t possible for ChatGPT to give an accurate assessment of my returns. That’s not its fault, but it’s a key limitation.
My tax situation means my income from Johnson & Johnson’s likely to be 15% lower than ChatGPT might think. While I like the stock, I think there are more attractive opportunities.
FTSE 100 dividends
In my view, UK investors happy with a 2.35% dividend should think about buying Howden Joinery Group (LSE:HWDN) instead. It’s another strong business but with a higher yield.
The company is probably less recession-resistant than J&J, but I think it looks like a terrific business. Unlike its rivals, it focuses on trade sales, which gives it some key advantages.
One of these is that selling to trade customers is more likely to generate repeat business. And another is that the firm doesn’t need expensive showrooms – it can operate out of warehouses.
This means it can charge lower prices than its rivals while maintaining wider margins. I see that as a really powerful long-term position to be in, which is why I like it as an investment.
Insider knowledge
There are good reasons why ChatGPT can’t tell me which dividend stocks I should buy. It depends on specific things about me that it’s unreasonable to expect AI to know.
It’s not just about being a UK tax payer, a lot of things determine what’s best for me. So while I think J&J’s a reasonable idea, I don’t think it’s my best passive income opportunity.
In this sense, I actually think the other chatbots have the right response. In a situation where AI isn’t in a position to make a fully-informed suggestion for me, the best thing to do is hold off.