How much income could I earn putting £80 a week into a Stocks and Shares ISA?

Our writer considers what an £80 weekly contribution into his Stocks and Shares ISA might mean for short- or long-term passive income streams.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One way to earn regular income without working for it is to drip-feed money into a Stocks and Shares ISA. Then it can be invested in shares that pay dividends before sitting back year after year and hopefully watching those dividends increase. That just leaves owning a share portfolio that hopefully grows in value.

Why an ISA can be a good way to earn income

For some investors, a Stocks and Shares ISA is a retirement fund or rainy day money. They put money in and buy shares, without expecting to take money out any time soon.

But an ISA can also be an income generator in the short and medium terms, even for a long-term investor.

Should you invest £1,000 in The City Of London Investment Trust Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if The City Of London Investment Trust Plc made the list?

See the 6 stocks

There can be a tax advantage to buying income shares in an ISA and receiving dividends. Personally, I also think there is a mental discipline that comes from putting money into an ISA. I could take it out, but once it is in the ISA I would think twice about doing so, as once I reach my year’s ISA contribution limit that is that.

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.

Jam today or more jam tomorrow

If I put £80 each week into a Stocks and Shares ISA, that would give me over £4,000 a year to spend on passive income-producing dividend shares.

Year after year I could keep growing the cash pile. So in the first year, with £4,160 to invest, if my average dividend yield was 5% I could earn £208 in income. Another year’s contributions could see me earning double that and, after three years, I already ought to be earning over £600 annually. The more years I stick to it, the bigger the potential.

An alternative would be to compound the dividends. That would mean I sacrifice receiving the income in cash now, in the hope of earning even more in future as my dividends themselves start to earn dividends.

If I invest £80 a week without compounding, after a decade my 5%-yielding portfolio ought to earn me £2,080 in income annually. Compounding at 5%, after the same 10-year period I ought to earn £2,676 annually in income.

Finding quality high-yield shares

I could earn even more if the average dividend yield on my Stocks and Shares ISA was higher than 5%. But hunting for yield without first looking at quality and value can be a costly recipe for failure. So I start by looking for a share I think has strong income prospects and trades at an attractive price.

As an example, consider Phoenix (LSE: PHNX), a share investors should consider buying for its dividend prospects. With a yield of over 9%, it is one of the most lucrative FTSE 100 dividend payers.

Created with Highcharts 11.4.3Phoenix Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The company owns a number of insurance brands and has a customer base in the millions. That is an industry I think is here to stay and Phoenix’s brands and customer base help give it competitive advantages. It aims to grow the dividend per share annually and has been able to do that over the past few years.

Dividends are never guaranteed and one risk I see is a property market downturn meaning Phoenix needs to write down some assets. Still, on balance, I think its income outlook remains strong.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

C Ruane 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.

More on Investing Articles

Investing Articles

2 FTSE 100 and FTSE 250 stocks to consider as stock markets plummet!

Looking for lifeboats as growth-crushing trade tariffs loom? Here are two (including a FTSE 100 gold stock) I think merit…

Read more »

Number three written on white chat bubble on blue background
Investing Articles

Just released: the 3 best growth-focused stocks to consider buying in April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »