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How does an income of £3,000 a month sound? Pretty cool, right? Although it carries some risk, I am convinced that the best way to target income like this is to buy shares in a Stocks and Shares ISA.
It allows investors to take advantage of the incredible wealth creation potential of the stock market. And with protection from income tax, every penny of your income is protected from HMRC seizure.
But how big will your ISA need to be to generate a life-changing income of £3k? It may not be as big as you think.
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.
Directing income
The answer to this question is simple about the dividend yield. A higher yield means more income for every pound invested.
The long-term average yield of FTSE 100 The index sits between 3% and 4%. The UK stock market is full of top sports stocks that yield more than that level. Many have interest rates double those rates, at 8%, or more.
At this rate, someone targeting £36,000 a year (or £3,000 a month) of income would need £450,000 in their ISA.
annual yield of 11.1%.
Investing in high-yielding stocks through an ISA comes with risks, however. Delivering the best market share to investors can be unsustainable. A large cash flow can also be a sign of a company in trouble.
Dividend runners can manage this risk effectively, however, with careful research and building a diversified portfolio. An ISA of 15-20 or more shares can reduce the impact of any one company stalling or reducing dividends on all profits.
Renewable Infrastructure Group (LSE:TRIG) is a budget stock that likes to build passive income. In fact, it’s mine that I hold in my Shares and Shares ISA. With a leading dividend yield of 11.1%, it can be one of the best dividend providers with an average portfolio yield of 8%.
TRIG (abbreviation) is one of the FTSE 250The best dividend stocks to consider, in my opinion. Shares have risen almost every year since listing on the London stock market in 2013.
Oversold income star
But why are dividend yields so high today? Investor confidence in the company is low and its share price has fallen significantly in 2025. Weak wind production, rising industry costs for new projects and higher-than-normal interest rates have pushed share prices lower.
I’m hopeful that confidence will rebound more over time, though, as these threats continue. The push to green energy continues at an alarming pace, and TRIG – which operates a large portfolio of wind and solar farms across Europe – is well placed to capitalize on this.
In the meantime, the cash it enjoys should help it continue to pay big dividends while the share price takes time to recover. Today it trades at a 37% discount to its net asset value, making it worth a close look for bargain investors.
Bottom line
In my view, a £450,000 ISA is a realistic indicator for sensible and patient investors. Based on an average annual return of 9%, someone could reach that magic number by investing £402 a month over 25 years.
