I love the idea of building a passive income for retirement with the dividends from FTSE 100 and FTSE 250 shares. The dividends I receive today can be reinvested to help me grow my portfolio. Then once I finish work, I can use these income-paying shares to pay my living expenses and let me hit my retirement goals.

I always choose which stocks to buy after doing my own research. I never use artificial intelligence (AI) models to help me choose dividend-paying shares.

However, I’ve decided to have a bit of fun and see if AI has improved with its stock selections. So I asked it the simple question: “Can you make me the perfect five-stock portfolio for a passive income”?

Here’s what it said.

5 of the best?

After stating its preference for “established FTSE 100 companies,” ChatGPT identified the following five dividend shares:

• Legal & General (25% of portfolio).
• Aviva (20%).
• HSBC (20%).
• British American Tobacco (LSE:BATS) (20%).
• Shell (15%).

There’s some great picks in there. I hold shares in three of these companies. One is Legal & General, which ChatGPT praised for its presence “across retirement, insurance and asset management, giving it several sources of cash generation“.

Aviva was next on the list, which the AI considers is “another major source of insurance, pensions, wealth and savings exposure” with strong cash generation. The final selection was HSBC, a banking share whose “internationally diversified earnings base, particularly through Asia, wealth management and wholesale banking” makes it an income stock to consider, the AI said.

So far so good, right?

Here’s the catch…

Yet there was a big flaw in the AI’s selection of Legal & General, Aviva and HSBC shares. Combined, they make up a whopping 65% of our virtual portfolio.

Why is this a problem? Each company’s operations are highly cyclical, meaning their earnings (and thus dividends) could underwhelm during an economic downturn. That’s not all — each also operates in the highly regulated financial services sector, where strict regulations (such as on capital requirements) could impact the passive income they deliver.

Add in Shell, and this ChatGPT portfolio is dominated by economic-sensitive companies. What’s more, while elevated oil prices are boosting the firm’s profits today, huge long-term uncertainty persists as the renewable energy transition accelerates.

A high-risk 6.3% yield

My biggest problem with this income portfolio, though is the inclusion of British American Tobacco shares. Robust cash flows make it one of the FTSE 100’s most reliable dividend stocks. Annual payouts have grown every year since 2000.

Yet the company’s share price hasn’t increased over the last decade. In fact, it’s down a whopping 19%. It’s also important to consider a company’s share price prospects when choosing dividend stocks. And the red lights here are flashing.

The problem for British American is that cigarette demand is in terminal decline. And next generation products like Vuse e-cigarettes are increasingly subject to regulatory restrictions on marketing, usage etc, that hastened the demise of traditional tobacco products.

It’s likely that these problems impact British American’s dividends at some point too

AI systems like ChatGPT can be a bit a fun when choosing stocks to buy. But as I’ve shown, using it to target a reliable passive income can be high risk. I’d rather do things the old-fashioned way and choose my own dividend shares.

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Royston Wild owns shares in Legal & General, Aviva and HSBC.