Some of the best shares for passive income can be found on the UK stock market. And by owning a portfolio of high-yielding ones, it’s possible to generate a healthy dividend stream for later in life.
But for an investor starting with nothing, how long could this take? Well, with the right strategy it might be quicker than you think. Let’s take a closer look.
Working backwards
The return on the 10 highest-yielding shares on the FTSE 100 is presently (20 March) 6.6%. Using this figure, to generate a monthly passive income of £1,500 — equivalent to £18,000 a year — a Stocks and Shares ISA would need to be worth £272,727.
If someone invested £500 a month — growing at 6.6% a year — it would take just over 21 years to get there. This assumes all dividends are reinvested buying more shares, a process known as compounding.
But for those who can’t wait this long, I reckon it’s possible to get there quicker. By adopting a stock-picking strategy with an emphasis on growth – and not concentrating exclusively on dividend shares — a higher rate of return could be achieved.
Even faster
For example, the five-stock portfolio below has returned an average of 22.5% a year (ignoring dividends) since March 2021.
| Stock | Sector | Share price CAGR (March 2021-March 2026) (%) |
|---|---|---|
| Airtel Africa | Telecoms | 36.4 |
| NatWest Group | Banking | 24.3 |
| Shell | Energy | 19.9 |
| Tesco | Grocery | 16.7 |
| AstraZeneca | Pharmaceuticals | 15.1 |
| Average | 22.5 |
Investing £500 a month at this higher rate would see a Stocks and Shares ISA reach our target in just over 11 years. Importantly, each of the five is exposed to a different sector of the economy. Diversification’s essential to help spread risk.
Of course, in both these scenarios, the usual caveats apply. Namely, that dividends cannot be guaranteed and that a stock’s past performance may not continue. However, it remains a powerful reminder that if an investor gets things right, the rewards can be huge.
Pole position
With a potential return of 9%, the highest-yielding share on the FTSE 100 at the moment is Legal & General (LSE:LGEN).
If this rate could be sustained, it would create £2,045 of passive income each month (£24,540 a year) on a £272,727 Stocks and Shares ISA. Impressively, the group last cut its payout in 2009.
But high yields might not last. Indeed, some have expressed worries that the insurance and savings group is paying nearly all its core operating earnings per share in dividends.
However, companies in the sector adopt accounting standards that require them to spread the earnings from their contracts over the lifetime of these agreements. This can make their income statements difficult to interpret. Cash is a better guide.
The group’s dividend cost £1.25bn in 2025. Reassuringly, this is comfortably exceeded by the £4.5bn of cash generated from its operating activities.
Potential challenges to its payout include increased competition and poor investment returns caused by global market uncertainty. At 31 December 2025, it had £522bn of bonds and equities on its balance sheet.
But its pension risk transfer business continues to win new business as trustees look to offload large schemes to third-party managers. And with more people wanting to take control of their own retirement planning, the group’s operating in a sector that’s growing.
When combined with its peer-leading dividend, I think it’s yet another example of a brilliant UK share that could be considered as part of a strategy to help deliver long-term wealth.
