How much do you need in a Stocks and Shares ISA to aim for £1k a month in passive income?
A tax-free £12,000 a year flowing into a Stocks and Shares ISA portfolio would be a pretty sweet milestone to hit. That’s because it would equate to £1,000 a month on average.
But how big would the ISA portfolio need to be to target that sum? Letâs crunch some numbers to get a better idea.
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Time needed
To generate £12,000 a year from dividends, the amount needed will ultimately depend on the portfolio’s dividend yield.
Hereâs a quick guide:
| Average dividend yield | ISA value needed for £12k a year |
|---|---|
| 4% | £300,000 |
| 5% | £240,000 |
| 6% | £200,000 |
| 7% | £171,000 |
Only targeting stocks with yields above 7% is probably a bad idea. That’s because most ultra-high yielding shares are higher-risk, as the companies behind them might have balance sheet issues, under-pressure profits, competitive challenges, and so on. The high yield may indicate that a dividend cut is looming.
Instead, let’s say someone invests £550 every month in a diversified portfolio of dividend stocks (some with lower yields). By reinvesting the payouts, the portfolio and the income from it would grow over time. Reinvesting dividends is an ideal way to fuel compound interest.
If an ISA pays 6% on average (no guarantees of course), that £550 a month would become £200,000 in just over 17 years, with dividends reinvested. At this point, an investor could take the dividends as passive income rather than reinvesting them.
FTSE 100 stock
Now, these calculations don’t include any trading or platform fees. These can nibble away at returns, particularly if thereâs frequent buying and selling. And no stock’s payout is ultimately guaranteed, making portfolio diversification essential.
That said, the calculations are also probably fairly conservative, because some quality companies lift their dividends significantly year after year. And this can really increase an investorâs effective yield over the long run.
Take Coca-Cola HBC (LSE:CCH) from the FTSE 100, for example. A bottling partner for the US soft drinks giant, it sells Sprite, Fanta, Coca-Cola, and Costa Coffee-branded products across parts of Europe, Africa and Central Asia.
Over the past few years, the company has grown its annual dividend per share at an average of 10.7%. Next year, the payout is forecast to rise by another 10.1%, giving the stock a respectable forward-looking yield of 3.5%.
My view is that Coca-Cola HBC is worth considering for a portfolio. Over the next few years, the global non-alcoholic beverage market is projected to grow at a compound annual rate of around 6%, boosted by younger generations who are opting to avoid booze.
Even better, Coca-Cola HBC’s growth is being driven by emerging markets, particularly Eastern Europe and Africa. In H1 2025, this particular segment posted robust organic revenue growth of 17.4%. New flavours of energy drink Monster, which it also sells, continue to prove very popular.
One ongoing challenge worth highlighting though is inflation. If this spikes and the cost-of-living crisis worsens in developed markets, sales could be negatively impacted.
On balance however, I like the prospects for this company over the next decade and think it’s worth considering. It has a strong balance sheet, a portfolio of top-tier brands, and a strong track record of execution by management.
A reasonable valuation of 14 times forward earnings also makes the investment case more appealing. The stock is down 12% since July.
The post How much do you need in a Stocks and Shares ISA to aim for £1k a month in passive income? appeared first on The Motley Fool UK.
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Ben McPoland has positions in Coca-Cola Hbc Ag. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
