When looking at the meagre share price returns of the FTSE 100, it may be tempting to ignore the index altogether. Why bother with it in an ISA when all the really sexy returns are being generated in New York?

However, overlooking the Footsie in favour of higher potential returns elsewhere can be a mistake. For proof, consider these three blue-chip shares. Five grand invested in each of them just two years ago would now be worth around £55,000 in total!

Rolls

The star of the show has been Rolls-Royce (LSE: RR). Since the start of 2023, shares of the iconic engine maker have soared 520% higher!

That was when CEO Tufan Erginbilgiç took the helm. Since then, international travel has bounced back and there’s been a significant rise in defence spending. Rolls’ profit margins and balance sheet have improved massively.

Looking ahead, the company forecasts underlying operating profit of £2.5bn-£2.8bn by 2027, up from an expected £2.1bn-£2.3bn last year.

However, the stock now trades at 27 times this year’s forecast earnings, which isn’t cheap. It suggests to me that much of the anticipated growth is priced in.

Therefore, if earnings come in light — because of ongoing supply chain issues, for example — then the stock could fall sharply.

M&S

Perhaps surprisingly, the next stock is Marks and Spencer Group (LSE: MKS). Shares of the posh supermarket are up by a whopping 178% since January 2023.

I don’t follow M&S too closely, but clearly I should, since it returned to the FTSE 100 in mid-2023. The reinvigorated company has achieved market share gains across clothing and food categories for four consecutive years.

On 23 December, it recorded its biggest ever day of food trading, while its online joint venture with Ocado is now delivering a record number of orders per week.

However, one risk worth noting here is the recent rise in the National Insurance and minimum wage announced in the UK Budget. To preserve profits, M&S may be forced to pass these higher costs on to customers. This might prevent it taking more market share in the ultra-competitive supermarket industry.

IHG

Finally, shares of InterContinental Hotels Group (LSE: IHG) have been on fire, surging 111% in the past two years to sit just off an all-time high.

Like Rolls, IHG has enjoyed a strong recovery in travel since the pandemic. It owns a diverse range of brands, including Crowne Plaza, Holiday Inn, and InterContinental (luxury).

In Q2, global revenue per available room (RevPAR) grew 3.2%, then ticked up another 1.5% in Q3. Impressively, the latter was achieved despite a 10.5% drop in RevPAR in Greater China. This highlights the strength and quality of the firm’s diverse global portfolio.

After its two-year doubling, the stock is trading at 24 times this year’s forecast earnings. That valuation doesn’t leave much room for error if, say, weakness in China spreads to the Americas and Europe.

Foolish takeaway

Admittedly, there was an element of cherry-picking here. Yet all three shares are well-known blue-chips, not obscure names.

Moreover, 3i Group stock (up 172%) actually did better than IHG, as did International Consolidated Airlines Group (up 148%).

So this proves that there are likely plenty of wealth-building UK stocks about, just waiting to be found.

Passive income’s often linked to side hustles or far-fetched schemes like solar farm leasing. But I know a much simpler, more accessible way to generate it – one that actually works and fits the definition perfectly. It’s passive because it requires little effort, and it’s income because it starts flowing almost immediately.

I’m talking about investing in FTSE 100 companies with regular earnings, loyal customers, proven business models and a history of paying high and rising dividends.

FTSE 100 companies work for me

This isn’t risk-free. Share prices can fluctuate and dividends aren’t guaranteed. But I offset these risks by diversifying across a spread of companies.

An investor with £10,000 – or even just £500 – can make a great start. Dividends should begin rolling in soon and, given time, compound to grow further. 

My calculations suggest £10,000 in UK blue-chips could eventually yield more than £400 annually in passive income.

But there’s a catch. This won’t happen overnight. Investing is a long-term process. While the effort’s minimal after the initial stock selection, patience is essential.

Did I mention the income’s tax-free? By using a Stocks and Shares ISA, there’s no income tax on dividends and no capital gains tax on share price growth for life.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Even the most reliable UK companies carry risks. Profits can decline, competitors can disrupt markets and regulations can shift. To manage this, a wise investor might split £10k evenly across five shares, known as diversification.

I avoid chasing the highest-yielding shares blindly. For example, telecoms giant Vodafone offered a tempting 10% yield, but its dividend will be cut in half shortly.

By contrast, FTSE 100-listed Imperial Brands (LSE: IMB) has a trailing yield of 5.88% and this looks more sustainable. A £2,000 investment in Imperial Brands would have delivered £118 in dividends. That’s just in the first year.

Imperial Brands has a mighty dividend

Reinvesting those dividends buys more shares, creating a virtuous cycle of compounding growth. Imperial Brands also rewards investors with share buybacks. On 8 October, it announced plans to repurchase up to £1.25bn of shares by October 2025.

Even better, its share price has risen 40% in the past year, delivering capital growth alongside dividends. However, there’s risk. Smoking’s a declining business. While smokeless alternatives could help, they might face regulatory hurdles too.

I personally avoid tobacco stocks, but if I didn’t then Imperial Brands would be on my shopping list.

Let’s say an investor built a diversified portfolio of dividend growth stocks delivering an average total return of 8% annually, including reinvested dividends. In the first year, their £10,000 investment would generate £800.

Over 30 years, that £10k could grow to £100,626, assuming the same 8% average compound growth. At that point, withdrawing 5% annually would yield £420 a month.

The earlier an investor taps into the income, the less they’ll earn. But the longer they stay invested, the greater the rewards. And with minimal effort.

Sometimes people have to accept that we don’t always make the best investment decisions. Therefore, I thought I’d turn to ChatGPT and ask it to name the top growth stock in the S&P 500.

Which one is generative AI’s favourite?

The generative artificial intelligence (AI) tool initially gave me a list of six companies from the index. Technology giant Nvidia (NASDAQ:NVDA) was the first name on the list. Surprise, surprise.

The other names were Amazon, chipmaker Advanced Micro Devices, defence company Axon Enterprise, and cybersecurity firm Fortinet.

”Can you narrow it down to one company?” I next asked it. Nvidia was the answer.

The reason given was the company’s domination of the graphics processing unit (GPU) market and leadership in the AI revolution. It touched on the tech giant’s expensive valuation, but thought this was justified because of the company’s strong growth and outlook.

In all truthfulness, this didn’t enlighten me. The points it provided were very basic and generic, so, I was somewhat disappointed.

My thoughts on Nvidia

I agree that Nvidia is a great company. Its growth frankly astounds me. Revenue is set to rise by a staggering 112% in FY25. It’s then expected to rise by 52% in FY26.

Achieving this level of growth as a small company is difficult. However, it’s particularly exciting to see the company turn $27bn of sales in 2023 into an expected $196bn by 2026. For a blue-chip stock, this is seriously impressive.

The success is also feeding into its bottom line. In the last quarter, earnings increased by 168% year on year.

For this reason, the stock price has risen by 859% since the start of 2023, leading many to believe Nvidia stock is expensive. However, I disagree with this notion. I actually believe its forward price-to-earnings (P/E) ratio of 32.8 is cheap for the firm.

Nvidia’s GPUs are becoming a cornerstone in the AI sector. It also looks likely to dominate the AI arms race with growth rates that are far superior than the already strong compounded annual growth rate (CAGR) of 37% for the industry.

One concern I do have about the company is potential Trump tariffs. If materials to produce its products become more expensive because of these, it could have a very detrimental impact on the company’s earnings.

My qualms with ChatGPT

I want to finish this article by saying that while I understand why it chose Nvidia as its top choice, I’m disappointed that it missed out Palantir (NASDAQ:PLTR) from its initial list.

The company was the biggest winner in the S&P 500 in 2024, with its shares rising by 341%. This is because it’s also experiencing accelerated growth from the rise of AI.

However, maybe the generative AI tool had its reason. For a company with a market cap of $155bn, Palantir’s trailing 12-month revenue of $2.6bn is concerning. Any weakness could send the stock price falling. For example, an insider sold $36m of Palantir stock a few days ago (7 January), which prompted an 8% share price drop.

Regardless, I don’t think ChatGPT provided me much use in my quest to find the best growth stock in the S&P 500. I believe it’s still better for an investor to do their own thorough research instead of using AI for stock-picking purposes.