As we approach closer to 2026, investors may be looking for new ways to make passive income.
I believe buying shares is one great way to achieve this. This is because investors only need to research the companies they’re invested in, not manage them.
One tax-efficient way to buy shares for this purpose is to use a Stocks and Shares ISA. You can invest up to £20,000 a year into one, and the dividends received are be tax-free.
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.
By investing consistently over time, it’s possible that investors could make a sizeable additional income.
So, how much would you need to aim for £5,555 a month? And what shares may help achieve this?
A plan for passive income
To achieve a passive income of £5,555 a month, investors need to consider high-yielding dividend stocks.
If we target an average portfolio yield of 5%, £1,333,200 would be needed to generate this second income straight away. It’s important to bear in mind that dividends aren’t necessarily guaranteed.
However, I doubt many reading this have that amount of spare cash to use right now. Even if you do, only £20,000 can be invested in an ISA annually to get the benefit of tax-free dividends.
However, it can still be achieved over time. For example, if investors set aside a more reasonable £20,000 initially, and then invest £1,666 a month, they could hit £1,341,746 in 24 years. That’s more than enough to generate £5,555 a month.
Crucially, the £1,666 monthly investment means it’s just under the ISA limit. Moreover, this is computed under some pretty conservative assumptions, notably that annual share price and dividend growth are only 2%. Investors would also need to reinvest their 5% dividends.
A juicy 6.7% yield
As mentioned above, an average yield of 5% could help to generate an investor’s passive income machine. That’s why Pfizer (NYSE:PFE) is a good share to consider, with a handsome 6.7% dividend yield.
Since the start of 2025, the pharmaceutical giant has seen its shares fall by 3.2%. Considering the S&P 500 has gained 16.7% over the same period, this has been disappointing.
However, savvy investors will understand that the cost to obtain the future stream of Pfizer’s dividend is now 3.2% cheaper than it was at the start of the year. Furthermore, its yield is far superior to the S&P 500’s 1.1%.
It also has a strong track record of raising its dividend year on year. It’s now increased every year since 2010.
There are some risks with respect to the company. The biggest is that it has several patents coming to an end over the next few years.
For example, Eliquis, its top-selling medicine, is set to lose its patent exclusivity in Europe in 2026 and in the US in 2028.
However, I still believe the firm’s long-term prospects remain strong. This is because it has plenty of exciting candidates in its pipeline, such as its PF-4044 medicine, which management believes could be used to treat various types of cancer.
While the company may have struggled with growth over the last few years, I believe it has solid foundations to bounce back and resume growth. That’s why I believe investors should consider its shares.
