How much do you need in an ISA to target £50 in daily passive income?
Receiving passive income regularly is one of the best boosts an investor can get. There are many different ways to achieve this, but using the stock market is one of the most popular. Via dividend stocks, someone can build up a diversified portfolio over several years that can eventually lead to income being paid on an almost daily basis.
The foundations
A good point to remember is that using a Stocks and Shares ISA can help to grow the portfolio faster. This is because the ISA isn’t subject to dividend tax or capital gains tax when someone sells a stock in the ISA for a profit.
An investor can put up to £20k a year in the ISA, which equates to £1.66k a month on average. Indeed, for the first few years, any income from the holdings could be reinvested to buy more stocks. Even though this means passive income can’t be enjoyed initially, it helps to speed up the process of reaching the end goal.
To target eventual daily passive income, I estimate a portfolio needs to hold around 100 stocks. Based on companies paying quarterly dividends, this should tick the box for receiving some money on average each day.
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Talking numbers
Based on active stock selection from both the UK and the US, I feel an average dividend yield of 6% is realistic. Therefore, to bank £50 on an average day, the ISA would need to be worth £300k. If someone invested the maximum of £20k per year in the ISA, it could take just under 11 years to reach this amount.
Of course, someone might not be able to invest that amount of money. If the amount was reduced to £750 a month, the goal could still be achieved, but it would take almost 19 years to reach.
Given all these projections, it’s important to remember that nothing is guaranteed. Things can change in the future that might mean dividends might get cut. Further, depending on dividend payment dates, money might not get paid every single day.
Potential inclusion
One example of a stock that could be included is the Schroder Real Estate Investment Trust (LSE:SREI). Over the past year, the stock is up 6%, with a current dividend yield of 6.61%.
It owns and manages income-producing real estate. It’s mostly commercial property, spanning retail through to logistics or industrial sites. Its largest holding now is Stacey Bushes Industrial Estate in Milton Keynes, valued at 11.2% of the overall portfolio.
As a listed real estate investment trust (REIT), the firm must distribute at least 90% of its net taxable income to shareholders. Therefore, when looking for a good income stock for the ISA, it becomes appealing. The dividends are typically funded by rental income from tenants.
Looking down the tenant list, the largest contributors include Siemens, Matalan and Premier Inn. Therefore, I’d be pretty confident in the prospects of dividends continuing to be paid based on the strength of these businesses.
However, 43% of the portfolio is concentrated in the north of England and Scotland. That’s quite high, so if this part of the country struggles, it could materially impact the trust. Yet on balance, I think it’s a good stock to consider as part of the ISA strategy.
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Jon Smith has no position in any of the shares mentioned. 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.
