We are now in the last month of the year. It’s natural to have our eyes set on 2026, especially when it comes to determining which direction the stock market could be headed. When it comes to passive income stocks, I think next year could be very important for returns, as I expect the Bank of England’s key interest rate to fall.

So I turned to my old friend ChatGPT to see if he had any words of wisdom about what to consider.

Heavy financial weight

The AI ​​bot directed me towards Legal and gendersl (LSE:LGEN), which she said was a really standout pick for next year. In terms of logic, she noted that the dividend yield has historically been much higher than… FTSE 100 index middle. This is true, as the current yield is 8.75% compared to 3.16% of the index average.

It also suggests that the legal and public have “It has long been seen as a cornerstone for income-focused UK investors.” I’m not sure I completely agree with this. The stock price has been volatile in the past, causing some investors to turn away and look for other dividend stocks with a more stable share price.

Although ChatGPT is a solid income stock pick, there are a few points it fails to mention that I think should be taken into consideration.

High return at a cost

Interestingly, the stock currently has the second highest yield in the entire FTSE 100 index. This will undoubtedly make it attractive to investors looking to boost their portfolio’s return for 2026.

The stock is up 11% over the past year. However, it may be overrated at the moment. For example, the price-to-earnings ratio is 84.95. This is very high, more than four times the FTSE 100 average. As a result, the share price may fall in 2026, making the valuation more reasonable. If this happens, anyone who buys now could see next year’s income benefits eroded by the unrealized loss caused by the lower stock price.

Furthermore, the dividend payout ratio currently stands at 0.94. Any number less than 1 means that the current earnings per share do not fully cover the earnings per share. This isn’t a great sign, because it’s basically paying more than it makes.

These are future risks, but that doesn’t mean I would rule out the company completely. At a basic level, the business model is diversified (insurance, retirement solutions, investment management), meaning multiple streams of cash flow support its dividend payments even if one part of the business experiences a downturn.

Overall, I think Legal & General is a good dividend stock. However, I don’t think this is the best passive income option to consider for next year in the entire stock market. I feel there are better options that have lower returns but are likely less overvalued.