The start of a new year is often a time when investors consider how their Stocks and Shares ISAs have performed over the previous 12 months. And those who like to invest in dividend shares are probably reviewing how much passive income their portfolios generated.
Personally, I’m using an ISA and a SIPP (Self-Invested Personal Pension) to build up a nest egg for my retirement. But how much would be needed in a Stocks and Shares ISA to match average UK earnings? Let’s take a closer look.
Crunching the numbers
According to the Office for National Statistics, £766.60 is the target. This is the median weekly earnings (before tax) of the country’s full-time employees.
To generate the same level of income from an ISA full of dividend shares yielding 6%, an individual would need to have a portfolio worth £664,387.
This is a large sum. But with a disciplined approach over a lifetime of investing, I reckon it’s possible to achieve something similar. The table below shows how much can be generated over 30 years depending on the monthly contribution and return achieved.
| Annual return/monthly investment | £100 | £200 | £300 | £400 | £500 |
|---|---|---|---|---|---|
| 4% | £68,751 | £137,502 | £206,254 | £275,005 | £343,756 |
| 5% | £81,869 | £163,739 | £245,609 | £327,479 | £409,348 |
| 6% | £97,925 | £195,851 | £293,776 | £391,702 | £489,628 |
| 7% | £117,606 | £235,212 | £352,819 | £470,425 | £588,032 |
| 8% | £141,761 | £283,522 | £425,283 | £567,045 | £708,806 |
However, one of the advantages of using a Stocks and Shares ISA, is that all income and capital growth can be enjoyed free of tax.
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.
So, is it possible to have a portfolio of shares paying dividends of 6%? I think so.
Close to home
One of the reasons why I like investing in UK shares is that many of them have impressive track records of returning cash to shareholders. Of course, there are no guarantees but a company’s history of payouts can be a useful guide.
For example, for 43 years, Scottish Mortgage Investment Trust has grown its dividend per share in cash terms. However, there’s another FTSE 100 company that’s done better. Halma’s 2025 financial year marked its 46th consecutive annual increase. What’s more, each of these has been worth 5% or more.
But neither of these stocks are yielding 6%. To achieve a return like this, it’s necessary to consider the top six on the index of the UK’s largest 100 companies. For comparison, the FTSE 250 currently (12 January) has 34 stocks offering a yield of 6%.
An option
One FTSE 250 dividend share that I think’s worth considering – indeed, one that I hold – is Harbour Energy (LSE:HBR). Since I first invested in 2022, the oil and gas producer has increased its dividend by around 13% but its share price has fallen by more than 40%. This means its current yield is 10.3%.
Not everyone likes the idea of investing in an energy company, which means there’s a smaller pool of investors out there. And Harbour Energy’s subject to a windfall tax of 78% on its UK profit.
However, as a result of some strategic acquisitions, it now produces more outside of the UK’s waters than it did previously at a lower unit cost. And despite the tax rate it faces here, the company’s expected to have generated $1bn of free cash flow in 2025, of which it plans to pay $455m to shareholders. Also, it has 19 years of reserves.
Harbour Energy’s just one exciting UK share that I hold.
