With interest rates expected to ease in 2026, income stocks are certainly back in focus.
So, out of curiosity, I asked ChatGPT to identify three income stocks that could deliver strong and reliable dividends in the year ahead.
Here’s what it said.
First up was Legal & General. It said the insurer currently offers a forward yield close to 9%, but sadly that’s not quite right. The real figure is closer to 8.2%. It said dividend appears well supported by strong capital generation, but it’s also worth noting that the coverage ratio — how many times net income covers dividends — actually falls below one based on forecasts. Typically we’d look for a coverage ratio above two. However, it’s true that the retirement, asset management, and insurance businesses produce long-term contractual cash flows.
Next was Phoenix Group. “With a yield of around 10%“… oops, wrong again. The forward yield is actually around 7.5%. ChatGPT also recognised Phoenix’s cash flows through insurance and retirement businesses, but failed to realise the coverage ratio was just 1.02.
Finally, the “National Grid adds stability to the mix“. But the yield is wrong again. It current sits at 4.1% on a forward basis and not the 5%-6% the AI bot claims. ChatGPT notes that it benefits from regulated, inflation-linked revenues across the UK and US. That I can’t argue with.
Obviously, I’m not that impressed. These companies would be fine if headline data (or, it’s version of the headline data) was all that counted. But that’s not the case. Unsurprisingly, these aren’t stocks I’d be considering for reliable dividends right now, despite the obvious allure of the insurance sector.
What would I choose instead?
One stock on my income radar is Arbuthnot Banking Group (LSE:ARBB).
The stock is trading around 8.2 times forward earnings. That makes it cheaper than all the blue-chip banking stocks out there. Its price-to-book ratio is also well below peers at 0.54, indicating the market is valuing the bank at a discount to the net assets on its balance sheet.
But it’s not exactly the same as its FTSE 100 peers. The big high-street banks generate most of their income from large-scale retail and corporate lending, transaction fees, and international operations. Arbuthnot, by contrast, is much more focused on relationship-based private and commercial banking, alongside specialist lending divisions.
At the half-year mark, the group reported customer loans (including leased assets) of £2.32bn and specialist division lending balances of £895.9m. Its customer deposits of £4.42bn provide funding for this lending. In addition, the group has funds under management and administration of £2.38bn, which generate fee income.
But crucially, the dividend yield is strong, partially because it’s overlooked. The yield sits at 6.1% on a forward basis rising to 6.6% in 2026. Coverage is around two times, indicating sustainability.
Of course, there are risks. It’s much smaller than the blue-chip banks and that will engender concerns about liquidity. However, I believe it’s a well-run business that’s absolutely worth considering.
