£20,000 in an ISA? Here’s how that would be £12,300 a year in passive income

I FTSE 100 it may cross over the 10,000 mark by 2026, but that doesn’t mean the revenue opportunities are dead in the water.

In fact, if we zoom in to take in all of this London Stock Exchangethe earning potential is huge. For proof, just look FTSE 250. According to my calculations, it has more than 30 stocks that offer a dividend yield of more than 6%.

I’m not saying they’re all slam-dunkers – dividends are never guaranteed, after all – but they do show a degree of opportunity.

Here, I’ll explain how you can aim to get more income from £20,000 within a Stocks and Dividends ISA.

Why an ISA?

For beginners, it is important to start with the right investment account. And for most people in the UK, this will usually be a Shares and Dividends ISA.

This wonderful vehicle protects any benefits (including income) from the taxpayer. With the contribution limit currently set at a maximum of £20,000 per year, this could facilitate wealth accumulation.

You see, when 100% of the returns are kept in a tax-free account, this money has the potential to earn more money. In other words, a Stocks and Shares ISA is the perfect place to let compounding work its magic over time.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Taking a long-term approach

Using the 6% dividend yield mentioned above as a benchmark, this means that a £20k portfolio of stocks will generate £1,200 a year in dividends. While that’s a useful amount of money, it’s not what you’d call huge.

To achieve this, time and patience are required. For example, if this 6% yield was reinvested rather than spent, and the portfolio increased in value by 3% per year on average, the £20k ISA would grow to approx. £205k after 27 years.

A 6% yield would equate to £12,300 in annual passive income!

Note, these figures do not include fees, and assume no additional fees have been added. Obviously, if other regular sums were invested over time, these figures would probably be much higher (assuming similar rates of return).

UK high yield stock

If you look at FTSE 250 stocks that yield 6% or more, TBC Bank Group (LSE:TBCG) stands out to me for a few reasons.

First, this is the leading banking group in Georgia, one of the fastest growing economies in the Eurasian region. This has fueled strong profitable growth at TBC, which also operates the leading digital bank in Uzbekistan (another fast-growing economy).

The stock is currently trading at a discount to Georgian banking peers Lion Finance (another FTSE 250 share). TBC’s earnings multiple is 5.7 compared to 6.9 for Lion Finance.

And despite a share price that has risen 190% in five years, TBC still boasts an attractive forward dividend yield of 6.9%. Furthermore, this forecast payout is covered almost three times by expected earnings, suggesting that the dividend is sustainable.

Now, the obvious danger here is Georgia’s economy. If that goes south, earnings growth could disappoint, sending the stock down in a heartbeat. There is also ongoing political turmoil in Georgia following the results of the disputed 2024 election.

Nevertheless, international institutions still expect the economy to grow by 5%-6% in 2026. Combine this strong growth with cheap valuations and high profitability, and I think TBC deserves a closer look.