The Stocks and Shares ISA can be a powerful tool in helping investors to substantially boost their passive income. As well as saving individuals a fortune in tax, investors can purchase a wide range of dividend-paying shares, funds and trusts from the UK as well as overseas.
Here are three strategies for ISA investors to consider for building passive income over time.
1. Consider high yielders
Assets that have large dividend yields can substantially boost one’s passive income. In a nutshell, these securities should provide an individual (if broker forecasts are correct) with a greater dividend income than if that person invested the same capital elsewhere.
High-yielding companies can be risky, as some inflate dividends to mask underlying business issues. But the good news is that investors also have a wide selection of top stocks with generous yields to think about.
Legal & General is one such company. Earnings may disappoint if tough economic conditions persist and consumers cut back further. But the FTSE 100 firm’s strong balance sheet means it should (in my opinion) continue to deliver market-beating dividends.
City analysts agree. Its dividend for 2025 is a gigantic 9.4%.
2. Look for dividend growers
Shrewd dividend investing isn’t just down to searching for the biggest yielders. It also involves locating companies that can grow shareholder payouts over time.
Sustainable dividend growth usually implies robust financial health, consistent earnings growth, and a commitment to rewarding investors with cash. A company with a rising dividend can also help investors offset inflationary damage.
FTSE-listed Bunzl (LSE:BNZL) is one such stock worth a close look. It’s consistently raised dividends for more than three decades, and is tipped to have grown them the 32nd straight year in 2024.
This is thanks in part to the broad range of essential products it supplies, including medical gloves, food packaging and cleaning equipment. It also sells them across a multitude of sectors in North America, Europe and Asia, providing it with excellent earnings stability and growth opportunities.
Bunzl’s appetite for acquisitions could impact future dividends if the balance sheet becomes stretched. But so far this hasn’t proved an obstacle to dividend growth. The firm’s dividend yield for 2025 is a handy 2.3%.
3. Diversify for safety
Holding a multitude of stocks offers a margin of safety for passive income investors. Dividends are never guaranteed, and companies can reduce, postpone or cancel cash rewards at a moment’s notice. Owning a portfolio of, say, 10 to 15 shares can help investors better absorb dividend shocks from one or two holdings.
Alternatively, an investor can consider buying an investment trust or an exchange-traded fund (ETF). This can offer even better diversification by spreading risk across an even larger basket of assets.
The iShares MSCI Target UK Real Estate is such ETF to consider. It holds shares in 35 property stocks across multiple sectors, giving it strength across all points of the economic cycle.
A focus on real estate shares means performance may lag when interest rates are higher. But over the long term the fund — which today carries a 7.6% forward dividend yield — could be a great way to generate passive income.
