Stocks and Shares ISAs are great products to target a large and sustainable passive income. They harness the terrific wealth-building power of the stock market where long-term returns have averaged 9%. What’s more, investors don’t pay a single penny in tax from their dividends to HMRC.
The FTSE 100‘s a popular destination for investors seeking the best income shares. Why? The index is packed with financially robust companies with leading positions in mature markets and diverse revenue streams. Take M&G (LSE:MNG) as an example.
This Footsie share has raised the annual dividend every year since it separated from Prudential in 2019. It also has a long history of offering market-beating dividends, and for 2026 offers an enormous 7.6% dividend yield.
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Let’s build an ISA
If an ISA just contained M&G shares, how large would an investor’s portfolio need to be to earn at least a £20,000 passive income?
Based on that 7.6% dividend yield, an investor would need an ISA of just over £263,000 right now. That’s not small change, clearly. But the miracle of compounding gains makes this figure very achievable.
Let’s look at this in action. We’ll say that an investor purchases £7,000 worth of M&G shares at the start of each year. The company has raised annual dividends at a rate of 2.4% over the last five years, which we’ll assume will continue.
In our example, we’ll also assume that all dividends are reinvested, and that M&G’s share price remains stable over time. We’ll start off with that 7.6% dividend yield for this year.
So what do we get?
If our investor did this for 15 years, they’d have contributed a total of £105,000. However, the value of their Stocks and Shares ISA would be far higher — thanks to the compounding effect on reinvested dividends, the portfolio would be worth an enormous £232,067.
That would then be generating a cool £22,220 a year in dividends:
| Year | Total sum invested | Annual dividend income | ISA value at year-end |
|---|---|---|---|
| 1 | £7,000 | £532 | £7,532 |
| 5 | £35,000 | £3,430 | £44,466 |
| 10 | £70,000 | £9,816 | £114,165 |
| 15 | £105,000 | £22,220 | £232,067 |
I’d back M&G shares to deliver a solid stream of income over the long term. The company enjoys terrific cash flows it uses to fund shareholder distributions. And its huge Solvency II capital ratio (242% at the end of 2025) gives it flexibility to keep paying large and growing dividends, even if earnings come under pressure.
On the downside, the financial services market is extremely competitive. That means future profits could be impacted if sales and margins come under pressure, impacting dividends. But I’m optimistic M&G’s leading position in a fast-growing market should continue fuelling eye-popping dividends.
Would I buy M&G shares only for my ISA though? Absolutely not. That would be far too risky. But I certainly think it’s a brilliant share to consider for a diversified, income-generating portfolio.
