By leveraging the power of Stocks and Shares ISA, investors can unlock a tasty second income stream. Even as little as an extra £300 a month can go a long way in 2025, especially as the cost of living continues to rise. But how much money does an investor need to have to passively harvest this level of income?
Crunching the numbers
Right now, the FTSE 100 offers a solid 3.3% dividend yield. So for those relying on a low-cost index fund, earning an extra £300 a month, or £3,600 a year, will require an ISA with around £109,000 saved up. Obviously, that’s not pocket change, but it’s a far more obtainable goal than most might think.
After all, the FTSE 100’s historically provided an average return of around 8% a year over the last few decades. And investing £300 each month at this rate would build the required six-figure portfolio within roughly 15 years when starting from scratch, or 10 years for those with £20,000 already saved up.
But for investors willing to take control and pick stocks directly, this process can be cut drastically. That’s because while the FTSE 100 as a whole only offers a 3.3% yield, plenty of its constituents offer significantly more.
Londonmetric Property (LSE:LMP), for example, offers a far more impressive 6.3% yield. And at this rate of payout, a Stocks and Shares ISA would only need to be as big as £57,140.
Let’s assume Londonmetric can eke out an extra 1.7% in capital gains each year to generate the same 8% total return. In that case, the time needed to unlock a £300 monthly passive income drops to just 10 years when starting from scratch, or five years when starting at £20,000.
A good investment in 2025?
Through a series of strategic acquisitions, Londonmetric has expanded significantly in recent years, making it one of the largest listed commercial landlords in Britain. Its real estate portfolio consists of logistical warehouses, private hospitals, retail stores, and even theme parks.
The continuous steady stream of rental income is how the business is able to offer almost double the yield of its parent index. And with a sturdy balance sheet, shareholder payouts have actually been getting hiked every year for the last decade.
Of course, no investment’s ever risk-free. Executing acquisitions and building out a real estate portfolio is an expensive endeavour. Consequently, the firm holds a significant chunk of debt on its balance sheet, making it highly sensitive to interest rates. In fact, that’s why the shares are still trading firmly behind 2022 levels.
Suppose businesses start falling behind on their rent, or occupancy suffers in a weakened economic environment? In that case, if Londonmetric’s unable to replace the lost cash flow, the pressure from debt interest payments could squeeze the group’s ability to continue paying out its high dividend yield.
Nevertheless, management’s demonstrated a knack for navigating the current unfavourable macroeconomic environment far better than many of its peers. That’s why I think it’s a risk that investors may want to consider taking when building a passive income producing Stocks and Shares ISA.
