Please note that tax 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.

The first step often seems the most daunting, which is to set up an ISA in the first place. There are plenty of platforms to choose from, with AJ Bell, Hargreaves Lansdown, i teractive investor the best known, but don’t ignore smaller rivals too. It’s ultimately a personal decision.

FTSE 100 shares build wealth

Next, try to use as much of that £20,000 annual ISA contribution limit as soon as possible. Don’t hang around. The first £1 anybody invests is the most valuable, because it has so much longer to grow.

Let’s say somebody puts £300 a month in an ISA from age 30. If they invest in a spread of FTSE 100 shares that delivers an average annual return of 8% a year, they’ll have £789,537 by age 67.

If they delay for just two years, until 32, they’ll get an awful lot less. Assuming the same £300 contribution and 8% growth, they’d have £669,968 by age 67. That’s a staggering £119,569 less. Yes, I find that figure pretty hard to believe too. But it’s because those first two annual contributions had 37 and 36 years to compound and grow.

So how much income will the £789,537 pot deliver? If the stocks in their portfolio deliver an average yield of 5%, they’ll pay £39,477 a year. Which is impressive.

British American Tobacco is a top yielder

While that’s a relatively high yield, plenty of FTSE 100 dividend stocks deliver that, including British American Tobacco (LSE: BATS). I don’t personally buy tobacco stocks, but if I’d realised what I’d miss as a result, I might have taken a less high-minded approach.

British American Tobacco is one to consider with a track record of paying dividends and increasing payouts every year this millennium. The trailing yield is 5.5%. Investors have bagged plenty of growth too, especially lately. The British American Tobacco share price is up 40% over the last year, and 88% over two.

Smoking may have declined in the West, but Big Tobacco has proven adept at increasing its share of a declining market through strong branding, while taking advantage of new growth opportunities in emerging markets. It’s also pioneering alternatives to cigarette ‘sticks’, such as vapes. 

There are risks. Tobacco makers are under constant attack from regulators, and the health issues can’t be denied. Also, the shares could idle or fall after such a strong run.

To build a secure income, investors need to build a diversified portfolio containing at least a dozen FTSE 100 shares. The stock market is volatile today, but as a result I can see plenty of bargains out there.

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So if someone wanted to get some of that money, what would they need to do?

Getting ready to invest

The short answer is that they would need to own some dividend shares. Doing that requires a physical way to buy and hold shares, such as a share-dealing account, Stocks and Shares ISA or trading app.

They then need to put money into it, whether as a lump sum or through ongoing contributions. How much will depend on what their passive income target is.

Aiming for £500 of monthly dividends

Imagine their target is £500 of dividends a month. That works out at £6k a year. You can calculate how big an ISA would need to be to try and hit that goal, based on its dividend yield. Yield is basically how much you expect to earn from dividends annually, expressed as a percentage of what you paid for the shares.

Say someones targetting a 6% average yield – a little over double the current FTSE 100 average, but still realistic in today’s market while sticking to proven blue-chip companies, I reckon.

That would require an ISA worth £100k. Perhaps someone has that money sitting spare in an ISA. But they could otherwise build to it at their own pace (and bearing in mind the annual ISA contribution allowance).

One way to speed things up would be to reinvest dividends at first so the ISA gets bigger, rather than taking the dividends out as cash from day one. That is known as compounding and can be a powerful accelerator when it comes to building passive income streams.

Building a portfolio of high-quality shares

I mentioned a 6% target yield above. As that is an average, not all of the shares in the ISA need to offer that high a yield, as long as overall the average is 6%.

One important thing to understand is that a dividend is never guaranteed. Guinness brewer Diageo recently slashed its dividend for the first time in decades. Indeed, it had been growing its dividend per share annually for over 30 years until last year.

That means it is important to choose carefully when deciding what shares to buy, but also to balance the ISA across a range of different shares and business sectors instead of putting all your eggs in one basket.

A share to consider

One FTSE 100 share I think merits consideration right now is cigarette maker British American Tobacco (LSE: BATS). Some investors shun tobacco shares for ethical reasons, but others may have concerns on financial grounds. Cigarette use is in structural decline and British American Tobacco’s cigarette sales volumes have been falling sharply. That is a risk to profitability.

But a strong brand portfolio gives it pricing power. The company has long experience managing declining demand and regulatory complexity.

The company has a lot of debt. However, it remains a cash generation machine. Like the Diageo of old, it has raised its dividend per share annually for decades – and plans to keep doing so.

The post How much would an ISA need in it to aim for £500 of monthly passive income? appeared first on The Motley Fool UK.

The most recent forecasts suggest FTSE 100 stocks could pay a record total of £86bn in dividends in 2026. And if ISA investors nabbed all the cash, they wouldn’t have to pay a penny of it in 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.

Consistent dividends

It looks like British American Tobacco (LSE: BATS) is likely to have ended 2025 among the year’s top five cash payers. So it’s no surprise it’s among the most popular UK dividend stock buys so far in 2026. With many shares under pressure from various geopolitical threats, the the share price has climbed over the past couple of years. Compared to many, markets see it as relatively safe, with a decent defensive moat.

The rise should hold the dividend yield back a bit. But even now, analysts still expect the stock to deliver 5.6% this year. And City forecasts show the annual cash returns rising, slowly but steadily, over the next couple of years too.

Clearly, the long-term risk for British American investors is the decline in popularity of tobacco. But February’s full-year results showed only a modest revenue dip of 1%. And the company added 4.7 million new customers to its smokeless brands. Smokeless products have already reached 18.2% of total revenue.

How that transition progresses, and how profits move over the timescale, adds risk. But I still think I see a decent future. And this has to be a stock for 2026 ISA investors to consider.

Soaring oil

Rising oil prices following the Iran conflict have helped push BP (LSE: BP.) shares up sharply in the past month. Is that a bit short-sighted? I think maybe it is, and it’s dropped the dividend yield to only 4% now. It’s still though, a bit above the FTSE 100 average.

In terms of cash, BP’s dividend’s in the top five biggest payouts expected for the year just ended. Oh, and it’s another of the most popular dividend stocks on investment platforms in the first few months of this year.

We do however, need to put the recent share price climb into context. Despite the win, the BP share price is still only roughly where it was around the year 2000. It had been struggling even before the pandemic — and those zero carbon plans launched at the same time — gave it a kicking.

Again, this is a company dependent on something most of us expect to fall out of use eventually. But again, I doubt the demise of hydrocarbons will come as soon as many people think. And BP hopefully has the clout to progress further in alternative energy sources itself.

Despite the risks in both these cases, I think I see two dividend stocks here that are well worth considering.

The post Looking for dividend stocks for a new ISA? These 2 are among the most popular in 2026 appeared first on The Motley Fool UK.

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.

Dividends and yields

That £30k is a meaty income. It works out at £2,500 a month. And that’s on top of the State Pension, and any other pensions. To work out how much capital is required, the starting point is dividend yield. This is the annual income generated by a share, expressed as a percentage of its price. If an investor could achieve an average yield of 6%, they could generate £30k a year from a £500,000 portfolio.

The FTSE 100 currently yields around 3%, although higher yields are available with careful stock selection. A 6% average feels achievable today without taking excessive risk. If the portfolio generates a lower 5% yield, the target climbs to £600,000.

Reaching £500k requires time, patience and consistency. Someone who contributes their full £20,000 Stocks and Shares ISA allowance each year and reinvests their dividends could get there faster than some might think.

Assuming a 7% average annual return, a portfolio could grow to around £500k in 15 years. That’s not guaranteed, but it shows what’s possible with regular investing and compounding.

Even smaller contributions can build meaningful sums over longer periods. The key is sticking with the plan and letting returns accumulate.

Diversification also matters. Spreading investments across a range of sectors helps reduce risk and smooth returns over time.

British American Tobacco shares are tempting

One stock that might fit into an income portfolio is British American Tobacco (LSE: BATS). It has delivered both growth and income for decades, and its dividend record is particularly strong. The company has increased its payout every year this millennium.

The shares have held up relatively well during Iran conflict volatiliity. They’re down 4.5% over the past month, but still up more than 40% over one year and almost 85% over two. Long-term investors will be comfortably ahead, with dividends on top.

The recent dip has made the valuation slightly more attractive. The shares trade on a modest forward price-to-earnings ratio of 13.1, while the yield has edged higher to 5.45%. Forecasts suggest this could rise to 5.69% this year and 5.86% in 2027. That shows the value of regular dividend increases.

There are risks. Tobacco faces constant regulatory pressure, health concerns and growing restrictions on newer products such as vapes. Competition remains intense. Some investors may understandably prefer to avoid the sector altogether. For those comfortable with the sector and the risks, it could be a stock to consider as part of a diversified income strategy.

A balanced portfolio of shares like this one can generate a rising income stream over time, all sheltered within an ISA. With markets unsettled, there are plenty of attractive dividend stocks available today, offering a blend of passive income and long-term growth.

The post How much do you need in an ISA to generate £30k a year passive income? appeared first on The Motley Fool UK.

The answer depends on how lucrative their investment choices are and also what sort of timeframe they can accept. Being patient can often be much more lucrative than being in a rush, as far as investing is concerned.

Say someone has a spare £9k. Here’s what they could look to earn by buying dividend shares and holding them over the long term.

Following some basic principles of good investing

£9k is ample to diversify across a few different shares. That matters because as an investor putting all your eggs in one basket can be a huge mistake. Dividends can always be cut.

I believe in long-term investing and the idea of trying to build second income streams helps illustrate why.

If someone invests the £9k at a 6% yield today, they could start earning £540 per year in dividends. That is £45 per month. But if they are patient and reinvest the dividends, a decade from now the portfolio ought to be worth over £16k.

Doing that for 25 years in total, it should then be worth over £38k. At a 6% yield, that would equate to an average monthly income of £193.

Choosing the right way to invest

With the annual ISA contribution deadline looming this weekend, this seems like a perfect time for someone with spare cash sitting idle to think about what else they might do with it!

A Stocks and Shares ISA can be a tax-efficient way to generate a second income.

But there are other options that can also be used for buying and holding dividend shares, such as a share-dealing account.

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.

A long-term income generator?

One share I think investors should consider for its dividend potential is FTSE 100 cigarette maker British American Tobacco (LSE: BATS).

Although past performance is not necessarily a guide to what to expect in future, British American has grown its dividend per share annually for decades – and plans to keep raising it annually.

That track record interests me partly because it demonstrates just how cash generative the business of making and selling cigarettes can be.

That is changing, though. Cigarette sales volumes are in structural decline.

Globally, cigarette volumes this year are expected to fall 2%. Last year saw a much bigger fall at British American, which shifted 8% fewer cigarettes than the prior year.

Some investors shun tobacco stocks for ethical reasons. Even for those that do not, that cigarette volume trend decline is concerning and poses a threat to the dividend.

However, the company’s premium brand portfolio gives it pricing power to try and mitigate shrinking sales volumes. It has already been battling falling volumes in some markets for decades, so has a well-developed playbook.

On top of that, British American has grown its non-cigarette business. That could help fuel future growth.

Its 5.7% dividend yield alongside the proven business strength means I think investors should consider the share.

The post £9,000 in savings? Here’s how to try and turn that into a £193 monthly second income appeared first on The Motley Fool UK.

One company that stands out as a potential cornerstone for passive-income seekers is British American Tobacco (LSE: BATS), but why?

Consistently high yields

Its appeal starts with a dividend yield that sits well above the FTSE 100 average. From 2020 to 2024 alone, it paid respective dividends of 210.4p, 215.6p, 217.8p, 230.89p, and 235.52p. These generated respective annual average yields of 7.8%, 7.9%, 6.7%, 10.1%, and 8.2% in those years.

Its current dividend yield is 5.5%, but returns can go down as well as up over time.

In fact, analysts forecast British American Tobacco’s dividends will rise to 251.4p this year, 259.8p next year, and 272.2p in 2028. These would generate respective yields of 5.8%, 6%, and 6.3%.

How much dividend income?

A risk to its future dividend returns is any delay in its transition to smoke-free nicotine substitutes. This could give the advantage to competitors pursuing the same strategy. Another is tighter regulation on tobacco and nicotine products, which could restrict sales or raise compliance costs.

Even so, consensus analysts’ projections are that British American Tobacco’s earnings will grow by an average 4% a year over the medium term. And it is this that ultimately powers dividend growth over time.

Based on the forecast 6.3% yield, my £20,000 holding in the company would make £17,490 after 10 years and £111,734 after 30 years. This reflects the dividends being reinvested in the stock to harness the power of dividend compounding.

On this basis, the holding’s value would be £135,725 by the end of the 30 year-year period. And this would pay a yearly dividend income of £8,551!

Share price gains too?

Another part of British American Tobacco’s appeal to me as a passive income holding is its potential for price gains. These, like dividends, are also driven by earnings growth over the long term. And in this case, the share price is already markedly lagging its ‘fair value’, in my view.

Discounted cash flow (DCF) analysis identifies where any stock should trade by projecting future cash flows and discounting them back to today. Some analysts’ DCF modelling is more conservative than mine, depending on the variables used.

However, based on my DCF assumptions — including an 8.7% discount rate — British American Tobacco shares are 37% undervalued at their current £43.13 price.

This implies a fair value for the shares of around £68.46 — much higher than where it trades today. And because asset prices can trade towards their fair value in the long run, it suggests a potentially superb buying opportunity to consider today if those DCF assumptions hold.

My investment view

The firm’s high yield is underpinned by years of consistent distributions. It reflects a management team that has long prioritised returning cash to shareholders. This is supported by steady expected earnings growth, which should also drive share price gains towards fair value over time.

Consequently, I will be buying more British American Tobacco shares soon. And other high-yielding and deeply-discounted stocks have also caught my attention in recent weeks.

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That is possible but there are some potential pitfalls to avoid. Here are three things that could help you build stronger passive income streams from your ISA

1. Choose the best ISA

It might sound obvious, but a good place to start is by getting the most from your ISA supplier, while keeping costs to a minimum.

Fees, commissions, and charges might sound small. But a 0.3% here and 0.5% there, £50 fixed commission here or £15 minimum there can soon start adding up. That can eat into returns over the long term.

So I think it makes sense to shop around when choosing the right Stocks and Shares ISA.

2. Focus on the quality of the dividend, not just its current yield

I like a high yield as much as the next investor. When investing I do look at a share’s yield.

But, critically, I do not look only at that.

I consider a number of other factors that help me judge what I think the dividend’s quality is.

For example, how well covered is it by free cash flows? How does the company’s board of directors prioritise dividend payments among other capital allocation choices? What might the balance sheet mean for free cash flows in future? How sustainable do the company’s cash flows look?

These are all subjective judgements to some extent. But I still think they are important when considering how long a dividend might last and what could happen to it in future.

3. Let the dividends earn dividends

Another way to boost passive income streams over time is to reinvest them, rather than taking them out as cash.

That way, the dividends themselves can start earning dividends.

This is known as compounding. It is a simple but powerful tool when it comes to growing passive income streams.

One income share to consider

Let me go back to what I said above about a company being able to sustain its dividend.

British American Tobacco (LSE: BATS) has a sizable debt pile. Its target market of cigarette smokers is shrinking, while regulatory burdens continue to threaten sales.

That makes it sound like it may be tough for the FTSE 100 owner of brands including Pall Mall to maintain its dividend over the long run, let alone keep growing it annually as it has done for decades.

But the company has strong pricing power, thanks to nicotine’s addictiveness and its portfolio of premium brands.

Cigarette demand has been in decline for years already in many markets, yet the company remains highly cash generative. It has also been growing its non-cigarette business.

Not everyone wants to be involved with tobacco companies, given the ethical questions concerned. But for those who do, I think British American Tobacco merits consideration given its passive income potential.

The post Want to turn your ISA into a passive income machine? These 3 steps help appeared first on The Motley Fool UK.

The numbers

When it comes to investing, numbers matter. They’re how we measure returns and investors can’t afford to ignore them. Rolls-Royce (LSE:RR) is a good example. The stock’s up 916% in five years and the underlying business has done incredibly well.

Has the share price gone too far, or could it still have further to go? It’s impossible to tell without looking at some numbers. Rolls-Royce has an enterprise value of £105bn. So to generate a 9% return for investors, the firm needs to make £95bn in 10 years.

The company made just under £3.6bn in free cash, which means there’s still some growing to do. And it has a lot of potential. One big reason for optimism is an ongoing move to sustainable aviation fuels. Rolls-Royce is in a great position as this unfolds.

Higher defence spending and investments in nuclear power could also boost growth. But a recession could knock things off course.

Can Rolls-Royce do it? I’m not sure and the stock isn’t on my ‘to-buy’ list right now. But again, there’s no way to know without looking at the numbers.

Strengths

Numbers are crucial, but they don’t tell investors everything. A good example of this is British American Tobacco (LSE: BATS).

Based on the numbers alone, things look great. Sales and profits are very steady and the valuation multiples are low. Those are some very positive signs. But there’s something else investors need to pay attention to and it’s not a number.

The issue is that cigarettes – the company’s core product – are in decline. That’s why the stock’s cheap and it’s a major risk. That means there’s a real chance the numbers won’t looks so good in the future. And when it comes, the decline could be sharp.

British American Tobacco is hoping to offset this with growth in other products. That’s a promising business, but is it enough? It might be, but this will depend on things like how well the firm’s nicotine pouches fare against rivals. And no number tells us that.

I’m not convinced about buying the stock. But that’s because of something that investors can’t find just by looking at numbers.

What I look for

When it comes to buying shares, good numbers need to be matched with strong companies. And I’m always looking for both. These are the only things that matter to me. If something doesn’t affects numbers or business prospects, I’m not bothered by it.

Neither Rolls-Royce nor British American Tobacco make my list right now. In both cases, they look attractive from one angle but not the other.

There are a number of other stocks in these categories as well. Fortunately though, there are also plenty that do look good to me. When numbers that makes sense meet with businesses in strong positions, I see opportunities. And can see these in the UK and the US right now.

The post What I look for when searching for shares to buy appeared first on The Motley Fool UK.

Even if someone were to start a brand new £20,000 ISA today, with the right investments, they could start earning a small second income by the summer. Here’s how.

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.

Earning quarterly dividends

Rather than buying shares in younger high-growth enterprises, investors can instead focus on the typically more mature industry leaders. It’s a far less exciting way to build wealth in the stock market. But it can come with one major advantage: dividends.

While not all large-cap stocks pay dividends to shareholders, those that do often stick to a regular schedule of once a quarter, once every six months, or once a year. There are even a small handful of stocks paying dividends every month.

But the key date to watch is the ex-dividend date. This is the point where, so long as an investor buys shares on or before this point, they’re eligible to receive the next dividend payment.

So which dividend stocks should investors be looking at that would start paying out this summer?

A 5.5% income opportunity

A popular UK income stock is British American Tobacco (LSE:BATS). While not everyone’s comfortable with the idea of investing in a tobacco business, this moral objection is a big reason why the stock’s offered chunky dividends. And right now, even after climbing 38% in the last 12 months, the FTSE 100 stock still offers a 5.5% yield.

In terms of money, that means a £20,000 investment today would unlock an annual second income of around £1,100. What’s more, with the next ex-dividend date set at 26 March, investors who act quickly will be able to receive their first pay day later in May.

However, while exciting, it’s important to fully understand both the risks and potential rewards.

Taking a step back

On the bull side, tobacco companies sell products that are notoriously addictive. And that’s translated into some enormous pricing power to offset volume decline with higher prices, fuelling a dividend that’s increased each and every year for decades.

On the bear side, regulatory pressure against tobacco companies has been steadily mounting. And even tobacco companies have admitted their business models need to evolve to stay alive in the long run.

British American Tobacco in particular has been allocating a lot of capital and resources to its ‘healthier’ New Categories, which include products such as vapes, heated tobacco, and oral nicotine – a strategy which does appear to be delivering results. But whether this novel part of the business will be able to outpace escalating regulations is where the uncertainty lies.

For now, the business appears to be a quality second income-generating stock with a comfortably cash-covered dividend. As such, for those who don’t mind owning a part of a tobacco business, it could be worth a closer look.

But if cigarette volumes continue to decline and New Categories fails to offset and replace the lost income, the firm’s multi-decade long payout hiking streak could come to an end – a risk that investors need to carefully consider.

The post £20,000 in an ISA today can earn a second income by the summer! appeared first on The Motley Fool UK.

Many will have been deterred by recent stock market volatility. As the Iran war rages, it seems like a dangerous time to buy equities. At The Motley Fool, we take a different view. History shows that markets are always bouncing up and down. The best time to buy shares is when prices are down, as they’re typically cheaper, and dividend yields are higher too. Aim to hold for years though, to give markets plenty of time to recover.

FTSE 100 is holding up

Short-term volatility is the price equity investors pay for long-term outperformance. The FTSE 100 is actually up around 20% on this time last year, with dividends on top. Despite recent worries, investors are comfortably ahead.

With the 5 April ISA deadline looming, there’s no time to waste. But the Stocks and Shares ISA isn’t just a great way to generate share price growth — it can also give investors bags of income, from company dividends. So how long would investors need to generate a tax-free monthly income of £500 in their ISA?

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.

That adds up to £6,000 a year. Now let’s say their portfolio produces an average dividend yield of 5%. To hit that £6k target, they’d need £120,000. That may sound daunting, but investors can get there by tucking away relatively small amounts over a long period. Time is the equity investor’s biggest friend.

Let’s imagine our investor is 30 years from retirement, and they build a balanced portfolio of individual FTSE 100 and FTSE 250 stocks that delivers an average annual return of 7%.

If they tucked away just £100 a month, or £1,200 a year, they’d end up with £121,287. Personally, I’d suggest they invest a lot more than that, and build an even bigger retirement pot.

However, if they only have 20 years to retirement, they’d need to up their monthly contribution to £250. Clearly, the earlier investors start, the better. But which shares to buy?

British American Tobacco shares fly

Ultimately, investors should aim for a balanced portfolio of at least a dozen stocks. For those happy to invest in cigarette makers, British American Tobacco (LSE: BATS) could be a good place to start. 

The FTSE 100 stock has a brilliant track record of long-term growth and income. Impressively, it’s increased dividends every year this millennium. The British American Tobacco share price is up an impressive 42% in the last year, and 95% over two years. And it still boasts a trailing dividend yield of 5.4%.

Tobacco stocks are seen as defensive, as people keep smoking throughout the economic cycle. The shares have held up during the Iran conflict, at least so far. There are long-term risks, as smoking kills, and regulators are always looking to tighten up. 

But a balanced portfolio of shares like these are a terrific way to produce a high and rising passive income for retirement, free of tax inside a Stocks and Shares ISA. And there are plenty more blue-chip bargains out there today.

The post How much do you need in a Stocks and Shares ISA for a £500 monthly retirement income? appeared first on The Motley Fool UK.