We’re a month into the new Stocks and Shares ISA year, so most investors probably still have some of their £20k annual allocation left.
With this in mind, some might look to target income from dividend stocks. By being smart with the way the money’s deployed, a four-figure monthly income further down the line is plausible. But how?
Key points to remember
To begin with, one benefit of using an ISA for this strategy is that dividends received will be banked without the tax being deducted. Put another way, there isn’t any tax payable on the income received in the ISA. This means payments can accumulate faster than usual, compounding income over time.
Another point worth noting is that reinvestment of dividends in the early years can make a big difference versus spending it. For example, if a stock has a dividend yield of 7% and someone invests £1k, in year one, it should pay £70 in dividends. Instead of spending this money, buying an additional £70 worth of the stock means that in the following year, the £1,070 could pay £74.90 in income. When this gets scaled up over time and money, it really makes a difference.
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Running the numbers
Let’s assume someone invests £500 a month in an ISA portfolio that yields 7%. Based on the current yields of stocks in the FTSE 100 and FTSE 250, I think this is a reasonable target. In that case, by year 20, it could pay out £1,456 a month on average.
Of course, this might take longer if companies cut dividends or if some black swan events happen. Some might think waiting for two decades is too long. The amount invested can change things, as the table below illustrates, showing the year when the monthly average income reaches £1,456.
| £500 a month | £750 a month | £1,000 a month |
| Year 20 | Year 16 | Year 14 |
A potential contender
In terms of stocks to think about including, one that’s hot right now is Aberdeen Group (LSE:ABDN). The stock’s up 32% over the past year, with a dividend yield of 7.03%.
At its core, Aberdeen’s an asset manager. That means it earns fees based on the amount of client money it looks after, which currently sits north of £550bn. The bigger those assets and the better the investment performance, the more fees roll in.
The share price performance looks impressive, but it’s really a reflection of a rebound after years of underperformance. This was mainly due to painful outflows, but Aberdeen’s finally stabilising, thanks to rising profits and cost savings. Profit before tax jumped 76% in the latest 2025 full-year results.
As far as the dividend goes, I see it as sustainable. The payout’s been held steady for years, and improving profitability plus solid capital generation suggest it’s broadly supported by cash flow as the business stabilises. Of course, there are risks. For example, Aberdeen’s core investment arm continues to face pressure from low-cost passive funds, which pose a threat.
Yet overall, I think it’s a good stock to consider as part of a diversified income portfolio strategy.
