Here’s how to invest £20k in an ISA in 2026 to target a 13% dividend yield
When a stock has an extraordinarily high dividend yield like 13%, that’s often a giant warning sign something’s seriously wrong. And all too often, massive yields are quickly met with massive payout cuts.
But for intelligent investors, earning a double-digit payout isn’t only possible but also sustainable with the right strategy. And when executed inside a Stocks and Shares ISA, this opens the door to enormous tax-free passive income.
So with the ISA deadline fast approaching, let’s breakdown how to invest £20k in 2026 to target a massive sustainable yield further down the line.
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.
Earning a big-but-sustainable yield
It may seem obvious that when building a high-yield income portfolio, investors should focus on finding the dividend-paying stocks with the highest yields. However, while it may seem counterintuitive, this is a classic mistake.
As previously mentioned, high-yield stocks, especially those in double-digit territory, almost always struggle to keep up, making a payout cut often inevitable.
To earn a massive, sustainable passive income, a high yield isn’t the answer. Instead, it’s the destination. The mission is to find dividend-paying companies that produce exorbitant volumes of excess cash.
Why? Because low-capital-intensive businesses operating with high profit margins and exceptional cash generation are not only able to continually reinvest in themselves, but also steadily reward shareholders with ever increasing dividend payouts each and every year.
ICG (LSE:ICG) is an example of this in action. The global alternative asset management group invests money on behalf of other institutional investors, earning management and performance fees.
Over the years, the company’s demonstrated impressive discipline and understanding across the public and private markets. And consequently, while cash flows can occasionally be lumpy, its assets under management have steadily increased, opening the door to even more fee-earning opportunities in a value-building loop.
The result? Sixteen years of uninterrupted dividend hikes. And even in the last decade, anyone who bought shares in March 2016 has gone from earning a 3.4% yield to 13% today.
So for investors with £20,000 ready to deploy inside an ISA, should ICG be on the shopping list in 2026?
Still worth considering?
While dividends have continued to chug along nicely, the last few years have been pretty volatile for ICG shares. Wild swings in investment returns driven by geopolitical and macroeconomic turmoil have weighed down on investor sentiment. And since the firm’s revenue stream is partially derived from performance fees, that’s similarly translated into volatility in the group’s cash flow.
Yet ICG has a long track record of navigating through these sorts of short-term rough patches. And with institutional investors increasingly looking to invest in the private credit markets (an area where ICG’s an expert), the company’s having little trouble attracting fresh capital from its clients.
In other words, the recent volatility may actually be a buying opportunity. And with the dividend yield for new investors sitting at 5.3%, the journey towards 13% could already be off to a solid start.
That’s why I think ICG shares deserve a closer look. But they’re not the only dividend growth opportunity I’ve got my eye on right now.
The post Here’s how to invest £20k in an ISA in 2026 to target a 13% dividend yield appeared first on The Motley Fool UK.
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Zaven Boyrazian 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.
