BAE Systems (LSE:BA.) is one of the FTSE 100‘s finest dividend growth shares. Shareholder payouts have risen for 22 consecutive years. In the last five years, they’ve grown at an average annual rate of almost 9%.

Strong market conditions for defence firms means City analysts expect more impressive dividend growth. If forecasts are accurate, a £20,000 investment in BAE shares today will provide a £360 passive income in 2026.

Investors can generate a better near-term income with higher-yielding dividend stocks. But over the long term, I think BAE Systems could be a brilliant income share to own.

In great shape

Last year the FTSE firm paid a total dividend of 36.3p per share. Analysts are predicting this will rise to:

• 39.4p in 2026
• 44p in 2027
• 49.9p in 2028

However, dividends are never guaranteed, even for businesses in non-cyclical sectors like defence. So how realistic are these estimates? In my view they’re pretty robust, with expected payouts covered by predicted earnings bang on the safety benchmark of two times.

That provides a margin of error in case, say, costs spiral or supply chain issues hit project delivery, denting earnings. But that’s not the only reason I’m comfortable with current dividend forecasts — BAE’s balance sheet adds another layer of protection. Strong cash flows mean net debt (excluding lease liabilities) to underlying earnings has toppled to 0.9.

That’s not all. Cash flows in the defence sector are about as predictable as they get, underpinned by contracts that typically last years. A huge £84bn order backlog means a substantial portion of revenues and cash flows are already locked in, giving BAE the visibility it needs for reliable dividend growth.

A dividend growth hero

As I said, BAE Systems shares don’t carry the largest dividend yields. These range between 1.8% and 2.2% for the next three years. Yet the possibility of brilliant and sustained dividend growth makes it a passive income share worth serious consideration.

This is because hot dividend growth stocks like this can be more powerful than high-yielding shares. Rising payouts boost passive income, but they can also support healthy share price gains, and help investors stay ahead of inflation.

BAE Systems shares are hot right now as defence budgets climb. The question is, will they remain in high demand and experience further price growth? I’m confident they can, given how low most European countries’ arms stockpiles currently are. With geopolitical uncertainty increasing, this could underpin strong and lasting demand.

One drawback is that the defence sector is highly competitive. And more than in any other industry, product failure could have significant ramifications for future sales. However, I feel BAE’s excellent operational record, expertise across project areas, and iron-clad relationships with major spenders (US and UK) reduces such threats. On balance, I think it’s one of the best dividend stocks to consider for long-term income.

The post Buying £20k of BAE Systems shares could give me a £360 income this year! appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended BAE Systems. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Individual Savings Account (ISA) is the best savings and investing product on the planet, I think. Tax protection on capital gains, dividends and interest provides better returns and extra cash to boost the compounding process. What’s more, withdrawals are safeguarded from income tax.

Yet the overall returns delivered by the Cash ISA and Stocks and Shares ISA are considerably different. According to Moneyfacts, the average yearly return on the cash product was a miserly 1.79% between 2010 and 2025.

The investing ISA, meanwhile, has delivered a far superior 6.79%. In monetary terms, this translates into a substantially greater cash sum. Of course, this is an average figure. Different stocks would have yielded very different returns, so the exact return would have varied for each investor.

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.

What’s the difference?

Let’s use a £20,000 investment made in 2010 to illustrate the wealth gap. If someone put this into a Cash ISA and didn’t touch the interest, they’d have £26,155 sitting in their account in 2025 based on those long-term averages.

The return on the same lump sum in a Stocks and Shares ISA would be a whopping £55,222, meanwhile, with dividends reinvested. That’s more than double the return of the cash product. This demonstrates perfectly the impressive long-term wealth creation of the stock market.

In reality, though, the return of the equities investor vs the cash saver would likely have been greater. This is because most people drip-feed money into their savings and/or investing accounts over time.

With an extra £500 a month parked in a Cash ISA, the total return over 15 years improves to £129,307. For a Stocks and Shares ISA? That comes in at a brilliant £210,842, meaning an even wider difference in cash terms.

Here’s what I’m doing

It’s important to remember, though, that the Cash ISA has some big advantages over the stocks equivalent. Savings products carry no risk, excluding the unlikely scenario where the account provider goes bust. And they provide a guaranteed return. Shares don’t carry the same assurances. In fact, it’s possible theoretically for investors to lose all their cash.

For this reason, I’ve taken two steps to protect my money while still targeting high returns. I hold money in cash, but put most of it in stocks. And in my shares portfolio, I hold roughly 20–25 stocks to help me manage risk.

Primary Health Properties (LSE:PHP) is a share I’ve just bought for my portfolio. It’s not totally without risk, as rising interest rates can hit earnings. But it’s still a pretty secure way to get stock market exposure.

Why? Well as the name implies, it rents out medical facilities like GP surgeries, and receives a steady stream of income. Healthcare assets like this remain in constant demand. And what’s more, rents are backed by government bodies like the NHS, basically eliminating the chance of rent defaults.

Primary Health has raised dividends every year since the mid-90s, underlining its resilience. And today its dividend yield is 7.7%. For ISA investors looking for low-risk ways to invest, I think it’s a great stock to consider.

The post £20,000 invested in an ISA a decade ago is now worth… appeared first on The Motley Fool UK.

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• How to invest £10,000 to aim for a £6,108 annual passive income
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• 2 passive income ideas for a Stocks and Shares ISA
• 2 UK shares with over 20 years of consecutive dividend growth

Royston Wild has positions in Primary Health Properties Plc. The Motley Fool UK has recommended Primary Health Properties Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Lloyds (LSE:LLOY) shares have been in electrifying form lately. Despite recent volatility, the FTSE 100 bank has more than doubled in value in just two years. Add in a steady stream of juicy dividends, and investors over the period have been laughing.

But the risks facing Lloyds have risen significantly since the start of 2026. And I’m fearing its share price could be overdue a correction, especially when taking into account its enormous valuation (more on this later).

So what do City analysts think? With 18 of them currently rating Lloyds shares, there’s some real difference in opinion. One broker thinks the bank will surge 25% over the next year, to 131p. Another reckons it’ll slump 13%, to 91p.

Tough task

So who’s likely to be right? The truth is that predicting near-term share price movements with any degree of accuracy is tough work. So I won’t be making my own prediction here.

The task is even more tough given ongoing uncertainty in the Middle East. The start of the war in February saw Lloyds and other major banking shares slide, the market pricing in the impact of surging oil prices on economic growth and inflation. It’s a scenario where revenues could slump and impairments rise, especially if interest rates are hiked, hitting the housing market and crucially mortgage demand.

Fortunately, the recent ceasefire in Iran and Lebanon cooled these fears. So did the reopening of the Strait of Hormuz, cooling oil prices. Lloyds’ share price predictably rallied on the news, and may pick up speed if peace holds as we all hope. But the Middle East situation remains fluid as the weekend’s development showed, so any upswing could prove temporary.

Are Lloyds shares a possible buy?

The truth is, I buy stocks based on how I expect them to behave over the long term. Whether the share price will rise or fall over a year, or what dividends it will pay in the near term, are secondary considerations.

Now, Lloyds is never going to be the most exciting growth stock in town. It operates in the extremely mature UK banking sector, and in a region with pretty mediocre economic growth. But this doesn’t necessarily make this banking stock unappealing. Its leading position in a largely stable market provides reliable cash flows, cementing its position as a dividend stock. Today its dividend yield is a FTSE-beating 4.1%.

The problem is that long-term risks are growing as challenger banks ramp up their operations. Will Lloyds’ earnings and cash flows remain as robust as these newer banks ramp up their operations? Revenues and margins could come under sustained pressure, and investment in its digital platform and processes may remain elevated as customer expectations rise.

Final word

Lloyds is currently one of the FTSE 100’s most expensive banking shares. When you consider its limited growth prospects versus emerging market specialists like HSBC and Lion Finance, and the severe competitive dangers it faces, I find its huge valuation tough to justify.

At 104.8p per share, its price-to-book (P/B) ratio is 1.5, towering above the 10-year average of 0.9. At this level, I’d rather find other cheaper banks with hotter profits expectations to buy for my portfolio.

The post How Lloyds shares could rise to 131p… or sink to 91p appeared first on The Motley Fool UK.

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HSBC Holdings is an advertising partner of Motley Fool Money. Royston Wild has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Early data indicates this ISA season was a washout for FTSE 100 shares. But it wasn’t just Footsie companies that suffered weak investor demand — UK shares of all colours were neglected before the end of the 2025/26 tax year.

Against the backdrop of the Iran War, investors’ appetite for riskier assets like equiries crumbled. ISA users didn’t even need to buy any shares to utilise some or all of their £20k yearly allowance. Just depositing cash was enough. Yet investor appetite remained muted.

Given the huge discounts many stocks now trade on, this is a missed opportunity, in my view. History shows that quality stocks always recover strongly in value when confidence in the stock market improves. Buying these cheaply can supercharge one’s returns over time.

It’s not too late to go bargain-hunting with a Stocks and Shares ISA though. Here are just twocheap FTSE 100 stocks that I think demand a close look.

Fresnillo

Precious metals stocks like Fresnillo (LSE:FRES) have had a bumpy ride of late. The reason? Dollar-denominated commodities like gold and silver have slumped as the US currency has gained momentum.

This leaves some tasty bargains to consider. This particular FTSE 100 miner now trades on a forward price-to-earnings growth (PEG) ratio of 0.4. Any sub-1 reading implies excellent value.

Despite their recent blip, gold prices are up 176% over the last five years. In my view, investors can expect further strong gains over a longer time horizon. Central banks are tipped to keep buying bullion to diversify their currency holdings and guard against risk. I’m also expecting demand from retail and institutional investors to keep rising as geopolitical and macroeconomic issues linger.

Buying Fresnillo shares does expose stock investors to the unpredictable business of mining and that’s a risk that can’t be shrugged off. But the Mexican company’s huge operational footprint means less risk than most other UK mining shares.

Sage Group

Over six months, Sage (LSE:SGE) shares have dropped a painful 25% in value.

Like Fresnillo, the software firm’s dropped sharply since the start of the Iran War. In this case, worries over company tech spending as inflation rises and growth slows has hit the stock.

But that’s not all pushing Sage’s share price lower. It’s also been a victim of recent AI-related volatility — could demand for its accounting and payroll software slump if businesses choose to do these processes with AI?

The threats are higher, no doubt, than they were six months ago. However, I feel the scale of the sell-off is overblown. Sage now trades on a forward price-to-earnings (P/E) ratio of 18.7 times. That’s significantly below the 10-year average of 31–32.

I feel the company’s strong long-term outlook remains intact. More and more businesses are digitalising their operations, and by embracing AI itself Sage is better placed to seize this opportunity. I think considering the FTSE 100 share at today’s low price is worthwhile.

The post Consider these FTSE 100 bargain shares in a Stocks and Shares ISA! appeared first on The Motley Fool UK.

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• Fresnillo share price rebounds as a FTSE 100 top mover after a 30% sell-off — what’s next?
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo Plc and Sage Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Stocks and Shares ISA investors have been surprisingly quiet in recent weeks. This time of year usually sees a spike in trading activity, as Brits max out their ISA allowances before the 5 April deadline. Many investors also jump into the market after this date to put the new tax year’s £20k allowance to work.

It’s not tough to see why investors have been more reluctant in 2026, with stock market volatility picking up following the start of the Iran conflict. The FTSE 100 has been up and down like a yo-yo, and stacks of smaller-cap shares have been hit even harder.

No-one likes seeing the value of their investments plummet. But have ISA investors been too cautious in recent weeks?

Volatile markets

It depends. Stock investing isn’t necessarily for those with low risk tolerance. And the dangers to share prices and dividends have grown significantly in recent weeks.

With energy prices spiking, inflationary pressures are rising again and economic growth is coming under pressure. The longer the Middle East conflict drags on, the greater these problems become. And there are currently no signs of breakthrough in talks to end the fighting.

Could corporate earnings collapse in the fallout? It’s possible. But that’s not the only reason why stock investors have become more fearful. Financial markets are also tough to read at the moment.

For instance, gold is one of the most popular classic safe-haven assets during periods of economic turbulence and war. So why has the precious metal plunged in recent weeks? It’s because of the resurgent US dollar, though this unexpected turn of events wouldn’t have exactly soothed investor nerves.

Looking long term

But here’s the thing: market volatility is nothing new. And over the long term, the direction of stock markets is clearly up.

Let’s take the FTSE 100 again. It struck fresh record highs just shy of 11,000 points in late February before falling as the conflict started. But it overcame a multitude of crises down the years to get there, from banking sector meltdowns and European sovereign debt crises, to the bursting of tech bubbles and global pandemics.

ISA investors that bought in during the depth of these crises often managed to substantially boost their returns. They snapped up quality companies when stock markets were low, and booked big profits when share prices eventually recovered. The same opportunity has materialised for investors today.

Here’s what I’m doing

I’ve been busy bargain hunting myself, and recently added more Aviva (LSE:AV.) shares for my portfolio. The FTSE stock has recovered from March’s lows, but it still offers tremendous value today.

At 640p, Aviva’s share price has a price-to-earnings-to-growth (PEG) ratio of just 0.1, below the value watermark of one. Its dividend yield, meanwhile is a blue chip smashing 6.5%. Sure, the business faces danger as consumer spending comes under fresh pressure. Yet at these prices it was too cheap for me to ignore.

And critically, Aviva shares still have the capacity to deliver exceptional long-term returns. Its insurance, retirement, and wealth markets are set to rocket thanks to favourable demographic trends. And the company has brilliant brand power and balance sheet strength to capitalise on this.

The post Nervous about investing in a Stocks & Shares ISA? Read this first appeared first on The Motley Fool UK.

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Royston Wild has positions in Aviva Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

International Consolidated Airlines Group (LSE:IAG) has been one of the FTSE 100‘s best performing shares of the last year. At 387.8p per share, it’s risen an impressive 55% in value. That’s roughly double the broader index’s rise in that time.

Despite these gains, IAG’s share price continues to offer some of the best value on the Footsie. At least, that’s the case on paper. Its forward price-to-earnings (P/E) ratio sits at 6.6, well below the index average of around 13.

Does this represent an attractive bargain opportunity?

Strong performance

IAG’s performance has remained rock-solid in a tricky period for the airline industry. Consumer spending remains under pressure in key markets, yet the British Airways owner continues to grow at an impressive rate.

Revenues increased 3.5% in 2025, helping drive underlying operating profit 13.5% higher, ahead of forecasts. It’s testament to the group’s excellent global networks and market-leading brands. An ongoing pivot to offering premium services is also paying off.

IAG has another major advantage: strong barriers to entry in the aviation hotspot of London. Capacity is constrained, and new airport slots extremely rare. By controlling around half of the slots at Heathrow alone, British Airways enjoys a dominant position on key routes, allowing it to command higher fares without the worry of losing business to competitors.

So what’s the catch?

The truth is, many stocks trade on rock-bottom P/E multiples for a reason. They can have poor growth outlooks, and/or face significant and rising risks. In the case of IAG, the dangers are growing rapidly as the Iran war rolls on.

The company has had to postpone flights on routes across the Middle East. But this isn’t its main problem. The conflict’s impact on the oil market is limiting supplies — around 20% of the world’s energy passes through the blocked Strait of Hormuz.

This creates two direct problems IAG. One is a sharp rise in fuel costs, the other a potential shortage of gas that could leave the group’s planes stranded on the ground. On Thursday (16 April), the International Energy Agency (IEA) warned that Europe has “maybe six weeks of jet fuel left“.

Even if the war ended tomorrow and the Strait reopened, it might still not be enough to avoid a shortage. After all, it takes weeks for oil tankers to reach their destinations from the Middle East.

Are IAG shares a buy?

The Iran conflict creates another significant, if indirect risk, for IAG shares. Rising oil prices are driving inflation higher, and weighing heavily on the economic outlook, as indicated by the IMF’s decision to slash global growth forecasts this week.

It’s a combination that could hammer demand for IAG’s services. After all, holidays away are among the first things consumers cut back on when times get tough. IAG could cut ticket prices to support sales, of course. But this would come at a high cost to its already threatened margins.

Long-term bargain hunters might want to give this cheap FTSE 100 share a close look. But I won’t be touching it with a bargepole.

The post Up 55% and a P/E of 6.6, is this FTSE 100 share too cheap to miss? appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Even after recent turbulence, the FTSE 100‘s returns have been exceptional over the last year. It’s up 27% since mid-to-late April 2025, even after shocks like the Iran conflict and worries over AI disruption. Adding dividends into the equation, the index has delivered a total return north of 30%.

Yet the Footsie‘s still a great place to go shopping for bargain stocks. Some top blue-chip shares still trade cheaply despite strong recent price gains. Other quality shares have also fallen in value, providing great dip-buying possibilities for bargain hunters.

3i Group (LSE:III), Standard Life (LSE:SDLF), and HSBC (LSE:HSBA) are three of my favourite FTSE 100 shares to consider today. Want to know why?

3i Group

3i is an investment company specialising in US private equity. Over the last year, it’s fallen by almost a third in value, meaning its share price is 21% lower than its net asset value (NAV) per share.

The firm’s problem right now is slowing sales at Action, a Dutch discount retailer. This is by far 3i’s largest holding, so you can see the problem. But has the market overreacted? I think so.

Action’s like-for-like sales growth halved in 2025, to 5% from the year before. They could remain under pressure, too, as inflation rises. But the long-term earnings potential here remains vast, spearheaded by the company’s planned move into the US. I think it’s worth serious attention at current prices.

Standard Life

Standard Life’s share price has rocketed 27% over the last 12 months. Yet the financial services provider still offers terrific value based on expected profits and projected dividends.

Its forward price-to-earnings (P/E) ratio is 9.7, and its P/E-to-growth (PEG) multiple is well inside bargain territory of below one (0.3). Meanwhile, its prospective dividend yield is 7.8%, currently the second highest on the FTSE 100.

Without doubt, the risks facing Standard Life are rising as the Iran war continues. The conflict could impact demand for its savings and retirement products if consumers tighten their belts. However, over a longer time horizon, I think the investment case remains intact and is worth considering. In my view, earnings could surge as the UK’s rapidly ageing population supercharges market growth.

HSBC

HSBC shares also provide plenty of bang for your buck. The P/E and PEG ratios for 2026 are ultra-low, at 11.7 and 0.7 respectively. And the dividend yield for this year is 4.5%, trumping the FTSE 100 average around 3%.

Like any retail bank, HSBC faces the threat of poor loan growth and rising impairments as the Iran war boosts inflation and hits growth. On the plus side, a likely rise in interest rates will help margins, though the overall impact could still be negative.

But I still think HSBC, whose share price is up 71% over the last year, could be a brilliant bargain. Why? Its large (and growing) focus on Asia could deliver enormous returns, where wealth and population levels are growing rapidly over time. I don’t think this is reflected in the bank’s rock-bottom valuation.

The post The FTSE 100’s up 27%, but these top blue chips are still dirt cheap appeared first on The Motley Fool UK.

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HSBC Holdings is an advertising partner of Motley Fool Money. Royston Wild has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Ever imagined having an extra £1,000 a week by way of a second income? With the tax benefits of the Stocks and Shares ISA, and the long-term power of the stock market, it doesn’t have to be a pipe dream.

Sure, it’ll take some time at the beginning to set up your portfolio. But with the right investment strategy and a little maintenance, investing in an ISA can be a powerful engine for building long-term passive income.

A £1k a week works out at £52,000 a year. Here’s how you could put yourself firmly on track to hitting that magical target.

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.

Building ISA wealth

Brits can put up to £20,000 a year into a Stocks and Shares ISA. With patience, and an eventual rotation into high-yield dividend shares, that could be more than enough for a serious second income.

Let’s crunch the numbers and I’ll show you how. Over the last decade, the average annual return on an investing ISA is 9.64%. There’s been some ups and downs in that time, but the long-term direction of stock markets has been firmly up.

So, what about if someone drip-fed £600 a month into their ISA, and managed to match that 9.64% figure? After 25 years they’d have £748,925 sitting in their account, thanks also to the beauty of compound returns.

If this was then invested in 7%-yielding dividend shares, our investor would enjoy an annual passive income of £52,425, or £1,008 a week.

A top FTSE income stock

Past performance isn’t always a reliable guide to future returns. And that 9.64% annual return will require some careful stock selection to make a reality. We’re talking about, for instance, a mix of shares spanning different industries and regions to spread risk and capture a range of investment opportunities.

Building a portfolio of complementary shares is also key to generating strong returns. Growth shares can boost ISA growth during good times; dividend shares provide an income and a solid return when times are tough; and value shares can deliver strong capital gains and protect against volatility.

M&G (LSE:MNG) is a great share to consider for portfolio growth and eventually drawing an ISA income. Dividend yields have consistently ranged between 6% and 9% since it entered the FTSE 100 in 2019. For this year, its yield sits bang on 7%.

So what makes it such a top dividend share? From its asset management and insurance divisions, it generates boatloads of cash it can then distribute to shareholders. M&G’s goal is to “maintain a progressive and sustainable dividend policy“, and with a strong balance sheet it’s in great shape to keep delivering. Its Solvency II capital ratio is 242%, sailing above the 100% regulators require.

The FTSE firm does face intense competition across its product lines. This in turn poses a risk to profits and dividends. But I believe M&G’s leading position in growing markets should keep delivering the goods.

A dip buying opportunity?

Long-term investors can also boost their chances of hitting that 9.64% return by buying shares cheaply. Following recent stock market volatility, I think now’s a great time to go looking for bargains that could recover strongly over time.

The post Here’s how a £20k ISA could generate a £1,000 weekly second income appeared first on The Motley Fool UK.

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• Here’s what happened to £1,000 invested in the past 2 stock market crashes
• How big must an ISA be to aim for a £15,000+ a year second income?
• Is now the perfect time to buy high-yield FTSE 100 dividend shares? 
• Analysts are predicting record dividends from FTSE 100 shares! What should I buy?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Most of us dream of ditching work sooner and taking early retirement with a large passive income. It’s a brilliant thought, and one that may be easier to reach than you think.

Investing in a Stocks and Shares ISA saves investors a fortune in tax, and it’s tailored to capture the long-term power of the stock market. With more than 5,000 ISA millionaires in the UK, the enormous benefits are there for all to see.

But you don’t need to build a million-pound portfolio to retire early. How large does an ISA need to be to make this reality? And how can investors go about acheving it?

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.

Income target

The size of the portfolio needed will differ from person to person. No two peoples’ financial circumstances are the same. Nor are their plans for retirement. But it’s important to have a ball park figure in mind to aim for, and the one I use is that provided by Pensions UK.

Their research suggests the average Brit needs £43,900 annual income to retire comfortably. That’s on the basis of a one-person household. The figure for a two-person household is £60,600, suggesting a smaller individual nest egg may be required.

However, I think the higher figure could be the better one to aim for, regardless of one’s living arrangements. That way, you can have an extra buffer against rising costs and any unexpected expenses.

Now onto the maths…

For an individual passive income of £43,900, someone would need a Stocks and Shares ISA of just over £627,000. That’s assuming they rotated their capital into dividend shares with an average yield of 7%.

What should ISA investors buy?

There are multiple ways to turn an ISA into a regular income. I like the dividend stocks idea, because it can deliver a steady stream of cash and further portfolio growth over time. Dividends aren’t guaranteed, which is an obvious drawback, but retirees can target a reliable income with a wide selection of shares, trusts, and funds.

Investment trusts like Henderson High Income Trust (LSE:HHI) can be brilliant ‘cheat codes’ for achieving large and reliable dividends. The reason? Their holdings often span a huge range of regions and industries, reducing the risk of dividend shocks on overall returns.

This trust holds shares in 57 heavyweight UK dividend shares including Rio Tinto, National Grid, HSBC, and Unilever. We’re talking firms with strong balance sheets, leading positions in mature markets, and diverse revenue streams. It’s a formula that’s delivered unbroken dividend growth for 13 years.

By focusing on British shares, it’s vulnerable to falling interest in London stock market companies more generally. But on the whole it’s a great trust to consider, in my view. For this year its dividend yield is a generous 5.7%.

Hitting our £627k goal

With our ISA target of £627,000 now drawn up, how long could it take to achieve this? Based on an average stock market return of 9% a year, it would take 22 years and 10 months based on an £700 monthly investment.

That would allow a 40-year-old to retire years before their State Pension age of 68.

The post Here’s how you could create a large ISA passive income and retire early appeared first on The Motley Fool UK.

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HSBC Holdings is an advertising partner of Motley Fool Money. Royston Wild has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings, National Grid Plc, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I own Legal & General (LSE:LGEN) shares in my portfolio for passive income. With a dividend yield consistently above 8%, and payouts that have risen in 15 of the last 16 years, it’s easy to see the appeal.

In fact, it’s one of the FTSE 100‘s best dividend stocks in my opinion. And the good news is City analysts expect cash rewards to keep rising over the medium term at least.

If forecasts are accurate, a £20,000 investment in Legal & General shares today will deliver £1,714 in dividends in 2026 alone. But dividends are never, ever guaranteed, so how robust are these estimates? And should I buy more stock in the company anyway?

Growing dividends

In 2025, Legal & General paid a total dividend of 21.79p per share. Analysts are predicting this will increase to:

• 22.23p in 2026
• 22.78p in 2027
• 23.42p in 2028

If these forecasts prove correct, investors could enjoy a substantial stream of cash — with dividends reinvested, a £20k lump sum invested today would provide a total income of £5,754 over the three years.

At Legal & General’s current share price of 259.4p, annual dividend yields range from 8.6% to 9% between now and 2028. To put that in context, the FTSE 100’s average yield sits way back at 3%.

Financial strength

But what are the chances of these dividend forecasts being met? As a Legal & General shareholder myself, I’ve got to concede that dividend cover isn’t as robust as I’d like.

For the next three years, predicted dividends are covered between 1 and 1.3 times by anticipated earnings. That falls well short of the widely accepted safety benchmark of two. If profits are blown off course, there could be problems.

So why am I not worried? With a robust balance sheet, Legal & General’s in great shape to hit its dividend growth target of 2% a year over the medium term. Its Solvency II capital ratio sits at 176%, which is also supporting a steady flow of share buybacks.

So what’s the catch?

I don’t think dividends are in danger of missing forecasts, certainly not in the immediate term. But that’s not to say Legal & General shares don’t carry risk.

Unlike rivals such as Aviva, this FTSE 100 stock doesn’t have a sprawling general insurance division. Its focus is on cyclical product segments like life insurance, asset management, and pensions. The downside? Profits are more vulnerable during economic downturns when consumers cut back, and the share price can slump.

However, this doesn’t worry me as a long-term investor. Over the next decade or so, I’m confident earnings will soar as favourable trends — like growing and ageing populations, and rising interest in financial planning — kick in. With excellent brand power and a broad product suite, Legal & General’s well placed to seize this opportunity.

And in the meantime, I can be extremely confident of more large dividends rolling into my investment account. I’ll be looking to buy more shares when I next have spare cash to invest.

The post Buying £20k of Legal & General shares could give me a £1,714 income this year! appeared first on The Motley Fool UK.

More reading

• How to invest £5,000 to target a £400.50 second income
• How much does an investor need in an ISA to target a £2,400 monthly passive income?
• How big would a Stocks and Shares ISA need to be to target a monthly income of £3,253?
• 3,703 Legal & General shares pay £822 yearly passive income
• Is this the perfect time to consider buying Legal & General shares?

Royston Wild has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.