Turning £500 into £3,270 a month

We can invest up to £20,000 a year in a Stocks and Shares ISA. Investing as much as you can earlier on is better, as it gives your money more time to grow. But even drip-feeding money regularly throughout the tax year can create an enormous nest egg for retirement.

This is thanks to the exceptional wealth-building power of the stock market. Over recent decades, the average annual return has come in at 8%–10%. No other asset class has provided this sort of strong and reliable long-term return.

Let’s crunch some numbers to illustrate how this can build retirement wealth. We’ll use the example of a 40-year-old who has zero investments, and hopes to retire at age 65. Despite starting from scratch, he or she has a terrific chance of achieving a £3k+ monthly ISA income in retirement.

How? Well let’s say they can achieve a 9% average annual return, the midpoint of that 8% to 10% range I described. If they invested £500 a month, they’d have a portfolio of £560,561 by the time they retire.

This would then throw off a £39,239 passive income each year if invested in 7%-yielding dividend shares. That works out at £3,270 a month, although this isn’t guaranteed.

What should investors buy?

Of course 7% is a pretty high dividend yield. That’s above the FTSE 100‘s long-term average of 3% to 4%, and finding quality companies with a yield this size can be challenging. These are sometimes a by-product of falling share prices, signalling that something isn’t right at the business.

So what are some decent passive income shares to explore today? One FTSE-listed stock that’s on my personal radar right now is Standard Life (LSE:SDLF). The forward yield here is 8.1% and is no anomaly.

Dividend yields have risen every year for more than a decade. And since 2016, they’ve risen at an annual rate of 3.2%. This has left an average dividend yield of almost 8%.

However, past dividends aren’t always a reliable guide to future payouts. And Standard Life, as a financial services provider, faces severe headwinds as inflation rises and consumers cut back on discretionary items.

This might impact the company’s share price. But would dividends be hit? I think not. With more than 12m customers, it can expect its robust cash flows to continue, underpinning more large and growing dividends. Standard Life’s huge capital buffer also boosts its dividend prospects (the firm’s Solvency II ratio is a high 176%).

Passive income advice

Buying just one or two dividend shares for income is a high-risk strategy. While I’m optimistic this FTSE 100 company will remain a top passive income share, there’s always the risk of payout disappointment. Investors should consider building a diversified ISA for long-term resilience, and think seriously about adding Standard Life shares to it too.

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One way of boosting your income in old age is to invest in the stock market. But how much would be needed to produce an income stream three times higher than the current State Pension? Let’s find out.

Some numbers

The current yield on the FTSE 100 is 2.8%. To produce the additional £31,352 — which when added to the State Pension of £12,548 gives a retirement income of £43,900 – an investor would need a Stocks and Shares ISA worth £1.12m.

Perhaps surprisingly for an index full of more UK-centric shares, the FTSE 250’s yielding 3.9% at the moment. An ISA valued at £803,897 is needed at this higher rate of return.

But I think it’s possible to do much better. The top 10 FTSE 100 stocks are offering a return of 6.7%. The figure for the five highest yielders is currently 7.4%. With these numbers, an ISA would have to be worth £467,940 and £423,676 respectively to reach our target income for a comfortable retirement.

Great for income

One stock that’s currently yielding slightly more (7.8%) is Standard Life (LSE:SDLF), formerly Phoenix Group. Someone would need to own £401,949 of the pension and savings group’s shares to produce dividends of £31,352 a year. Of course, holding just one share in a portfolio is a bad idea.

Sometimes, a high yield’s caused by a falling share price. Not in this case. Shares in Standard Life are now changing hands for 27% more than they were in April 2023. Since its 2022 financial year, the group’s raised its dividend by 9%.

But savvy investors know that dividends don’t come with any guarantees. And Standard Life’s generous payout could come under threat if earnings shrink or fail to grow in line with expectations.

To help fund its obligations it manages a large portfolio of investments. At 31 December 2025, it owned £309bn of financial assets including £111bn of equities. Volatile markets will result in erratic investment returns. If the current ceasefire in the Middle East doesn’t hold, the group’s earnings could be hit.

Another threat could come from increased competition.

My view

However at the moment, the group’s performing well with 2025 being another strong year for the group. Operating cash generation increased 5% compared to 2024. And adjusted operating profit rose by 15%. In addition, there was a 7% rise in assets under administration and its Solvency II ratio improved by four percentage points to 176%.

Also, it appears to be operating in the right sector at the right time. In my opinion, it’s likely to be one of the biggest beneficiaries from the anticipated 70% increase in the size of the UK’s long-term savings and retirement market.

For these reasons, I think Standard Life’s a stock that pensioners looking to supplement their income from the state (and other younger investors too) could consider.

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This is where buying dividend stocks comes in. Past performance isn’t always a reliable guide to future returns. However, companies with strong dividends often outperform during periods of share price pressure, providing an income that can deliver a robust overall return.

With this in mind, I believe investors should consider buying Invesco Bond Income Plus (LSE:BIPS), iShares MSCI Target UK Real Estate ETF (LSE:UKRE), and Standard Life (LSE:SDLF). These dividend stocks, investment trusts, and exchange-traded funds (ETFs) each carry dividend yields above 7%.

Plus point

Invesco Bond Income Plus is an investment trust specialising in “high-yielding fixed-interest securities“. A focus on coupon-paying corporate bonds could be an attractive strategy today by protecting investors from potential stock market volatility.

There is some risk by focusing on debt securities, though. With economic conditions worsening, companies could default on their loan obligations. Just under three-quarters of bonds this trust holds are below investment-grade status, which can be particularly dicey in a tough landscape.

However, a bond portfolio like this allows Invesco Bond Income Plus to offer super-high dividend yields. Today this sits at 7.1%. And with a diversified mix of holdings spanning industries and regions, the trust’s set up to reduce risk to shareholder payouts. Excluding pandemic-hit 2020, it’s paid a stable or growing dividend every year since 2013.

Top trust

The iShares MSCI Target UK Real Estate ETF has proved a brilliant dividend payer over time. The reason why? It focuses chiefly on property-owning real estate investment trusts (REITs), which pay at least 90% of annual rental profits out to shareholders.

What I like about this fund is the wide range of REITs it holds (26 in total). These include specialists in logistics, office spaces, student accommodation, and food retail, a mix that spreads risk if the economy worsens. That’s not all — the ETF also holds fixed income securities, adding more defensive steel.

Property occupancy and rent collection issues are still a threat, but that portfolio mix significantly reduces the potential impact on dividends. The yield here is a large 7.2%.

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 FTSE favourite

Standard Life offer the second-highest dividend yield on the FTSE 100, at 7.9%. In my view, it’s one of the strongest income stocks to consider right now.

This comes down to the strength of the firm’s balance sheet. Financial services companies like this are required to maintain a minimum Solvency II capital ratio of 100%, but Standard Life’s is 176%.

That gives me confidence in the firm’s ability to keep delivering index-beating payouts. In fact, analysts believe its strong financial foundations could even prompt sizeable share buybacks despite the uncertain outlook.

Standard Life’s share price could slip if economic conditions worsen and earnings drop. But I still believe it will achieve solid long-term growth as its markets steadily expand.

The post 3 high-yield income stocks, investment trusts, and ETFs to consider in 2026! appeared first on The Motley Fool UK.

Standard Life has delivered something that Legal & General has struggled to do. Share price growth. The Standard Life share price is up almost 25% in the last year (and was doing even better before the Iran war hit markets). By contrast, Legal & General Group is up just 5% over 12 months.

I hold both stocks in my SIPP, but Standard Life, which recently rebranded from Phoenix Life, has been the more rewarding. And I’ve just noticed that its shares go ex-dividend on Thursday (9 April). Any investor who wants to share in the final 2025 payout needs to buy it before then. Should they go for it?

FTSE 100 high yielder

Right now, buying any stock is nerve-wracking, as we await events in the Middle East. That’s why at The Motley Fool we always advise buying shares with a minimum five-year holding period. That allows the market to shrug off short-term shocks, while giving the share price and reinvested dividends time to compound and grow.

Investors must always approach high yielders like this one with caution, as shareholder payouts could prove unsustainable. Yet Standard Life has a solid track record of increasing dividends, lifiting shareholder payouts every year for a decade. Growth has been modest, at an annual compound rate of 3.18%, but that suggests it’s taking a measured approach. Future dividend growth is expected to slow to around 2% a year.

Standard Life operates in a competitive market and has to continually source new business to keep the revenue flowing and the dividends secure. It’s identified a new growth opportunity in pension risk transfers, although plenty of insurers are chasing the same business. If the Iran conflict intensifies, Standard Life could get swept up in a stock market crash, which would hit the value of the £280bn of assets it holds to protect against insurance liabilities.

Solid FTSE 100 stock

With a forward price-to-earnings ratio of just over 16, the shares are decent value. The forward yield is 8.1%. If an investor decided to put their full £20,000 Stocks and Shares Isa allowance in Standard Life, they could look forward to income of £1,620 over the next year.

To bag the 2025 final dividend, they’ll need to move quickly. It’s worth 28.05p for each share bought. Today, the shares trade at 712p. So £20k would buy 2,808 shares. These would produce a dividend of £778 on 20 May. An interim payout will follow in October. It’s worth pointing out that the shares are likely to fall on 9 April to reflect the lost value after paying that dividend.

Only an experienced investor with a large portfolio should put their full ISA in a single stock. As with every purchase, investors should spread their risk and take a long-term view. But I think Standard Life is well worth considering today.

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Standard Life‘s (LSE:SDLF) one dividend hero I think has been oversold in the panic. Down 5% over the last month, a £5,000 investment here today will give buyers 709 shares. With an 8.1% dividend yield, it means share pickers could make a £405 second income this year alone if broker predictions are accurate.

And if I’m right, I think it could be an excellent dividend payer for years to come.

Giant dividend yields

It’s important to remember when investing for income that dividends are never, ever guaranteed. In the current climate, with interest rates rising following the Iran war and economic growth cooling, stock investors need to take particular care.

However, Standard Life has a strong track record of paying large dividends, even during tough times. In fact, they’ve kept rising over the last decade despite challenges like Brexit, the pandemic and soaring interest rates.

What’s more, those enormous dividend yields it offers today are no one-off. This has averaged 7.8% since April 2016, blowing the long-term FTSE 100 average of 3%-4% out of the water.

This fills me with confidence though, as I say, dividends are never nailed on.

Good omens

In this case, it’s important to stress that dividend cover falls woefully short for this year. A reading of two times or above generally provides a comfortable margin of safety in the event of earnings being blown off course.

With Standard Life, this year’s predicted dividend is 57.1p per share, and expected earnings at 73.3p. That leaves cover of 1.3 times. So for investors seeking no drama and predictable passive income, the company should be off limits, right?

The answer in my book is ‘no, not at all’. Weak (and even negative) dividend cover is a long-running theme with this particular stock. Yet a strong balance sheet has enabled it to keep offering enormous and growing yields.

Standard Life’s a cash machine, simply put. It receives a steady stream of product fees and investment returns, while its operations involve low capital intensity. So it still maintains that capital-rich balance sheet today. Its Solvency II ratio was 176% as of December, miles above the required 100%.

A growing passive income

It’s possible that the company’s balance sheet could weaken in 2026 if the war in Iran rolls on. The impact on consumer spending could put a dent in consumer demand for discretionary products, harming cash flows.

I’m optimistic that it will remain resilient in the face of these pressures as it’s been in the past. And so are City analysts — they’re tipping dividends to keep growing through to 2027, nudging the yield from 8.1% this year to 8.4% next year. It’s worth considering.

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I think so – here’s how.

Thinking of what an ISA could do for you

A Stocks and Shares ISA is basically just a platform for buying, holding, or selling shares. It is essentially like a share-dealing account and many of the features are the same or similar.

But there is one major difference: the tax treatment. Capital gains or dividends in an ISA do not attract tax.

The annual dividend allowance for income taxpayers now stands at only £500. Still, for someone putting £3,000 to work, that might mean they could earn their dividends without paying income tax on them even outside an ISA wrapper.

However, investing is about aiming to build wealth over time. Dividends can shrink or be cancelled, but they can also grow.

So, from a long-term perspective, I think even an investor with a few thousand pounds to spare ought to consider the potential merits of a Stocks and Shares 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.

Here’s how an ISA can generate passive income

Once the money is in an ISA, though, how might it start to make income?

The first step is to start investing, in shares that hopefully will pay dividends. Such payouts can come and go even at a successful business. So, as well as spreading the money over some different shares (£3k is enough to do that), it is important to choose carefully when looking for shares to buy.

There is lots to learn in the stock market, from valuation to understanding the cash flows that underpin dividends. When someone starts investing, I think it makes sense to learn about key elements and also take a conservative approach to managing risks.

It may sound surprising, but I reckon that many new investors could improve their returns if they spent as much time looking at the risks of the shares they buy as they do at the potential rewards.

The current FTSE 100 yield is 2.8%. At that level, £3k could earn around £84 of passive income per year. But I think a higher yield is possible while still sticking to high-quality businesses.

Household name yielding close to 8%

For example, one higher-yielding FTSE 100 share I think investors should consider is financial services company Standard Life (LSE: SDLF).

With its current yield of 7.9%, it is among the most lucrative dividend payers in the top-flight share index.

It also aims to keep growing its dividend per share annually as it has been doing in recent years. Of course, whether that happens in practice will depend on how well the business does.

Standard Life is only one of the brands the company uses in its large retirement savings and income business. With around £300bn of assets under management and some 12m customers, it is a sizeable operation that can generate large free cash flows.

An economic downturn could hurt investment returns, eating into the firm’s earnings. Even considering that risk, I still see the share as having strong long-term income potential.

The post £3,000 in savings? Here’s how that could be used to start investing in an ISA and earn monthly passive income appeared first on The Motley Fool UK.

Take Standard Life (LSE:SDLF) as a prime example. Its dividend yield for 2026 is an enormous 8.5%. At this level, someone who invested £100,000 in this single stock in an ISA would generate a tax-free income of £8,500.

Betting all of your chips on one hand (so to speak) is a risky strategy. But if current forecasts are accurate, Standard Life could be a terrific bet for a large and growing passive income. The company’s dividend yield rises to an even-better 8.8% for 2027.

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.

Cash machine

A sky-high yield is sometimes a symptom of a share that’s dropped in value. But this isn’t the case with Standard Life, whose share price has actually risen 16% over the last 12 months.

The stock — which until recently traded under the name Phoenix Group — has been hiking annual dividends, resulting in those gigantic yields. Yearly payouts have risen consistently for roughly a decade, and at a healthy average growth rate of 3.2%.

So what’s its secret? The answer’s simple — the company enjoys incredible cash generation. Predictable life insurance and pension premiums, and recurring income from its fixed income portfolio, supplies a steady flow of cash it can return to shareholders.

Past performance isn’t always a reliable guide to future dividends. But I’m confident Standard Life can deliver the market-topping dividends that analysts are predicting. Its Solvency II capital ratio is 176%, sailing above the 100% regulatory requirement. And the Solvency II leverage ratio (measuring debt to capital) is 33% and trending lower, on course to hit 30% this year.

The share’s robust balance sheet also means analysts are confident of monster share buybacks before long. UBS is expecting £150m worth of these annually starting later this year.

What are the risks?

Yet as with any share, Standard Life isn’t completely without risk. After all, it operates in a highly economically sensitive industry. If conditions for consumers deteriotiate — for instance, if a prolonged Middle East war drives inflation skywards — profits and cash flows could suffer.

Even if this doesn’t impact dividends, it could push Standard Life’s share price sharply lower, wiping out the benefit of those huge dividend yields.

This is why it’s important to hold a diversified portfolio of shares, rather than just putting all of your eggs in one basket. I’m optimistic Standard Life will keep paying huge dividends in the near term, however. And I believe they’ll grow strongly over time as demographic changes drive market growth. I think this is a great FTSE share to consider for a second income.

The post Should I put 100% of my cash into this dividend stock for a second income? appeared first on The Motley Fool UK.

It’s anyone’s guess how the future will actually play out. But the possibility of a stock market crash throws up opportunities too. The panic of such an event could throw valuations into disarray, creating numerous chances for investors to pick up bargains in the market. Any upcoming crash might turn out to be an incredible passive income opportunity. Here’s how.

Maximising

Passive income is, for many, almost synonymous with dividends. The yield from a stock gives out a percentage return that means cash in the bank whatever the share price is doing. And, of course, the higher the better.

The yield itself is linked to the share price, however. For example, if a share price falls by 50% then the dividend as a percentage is doubled. This is why stock market crashes can be great opportunities to pick up oversold shares as the dividend yields start rising.

That doesn’t mean investors should go around buying willy-nilly in the event of a crash. A falling share price is sometimes a problem and can also lead to a cut in the dividend too. This is why good stock selection is key to maximising the potential passive income.

An option?

What companies might look attractive in the event of a crash? Well, one FTSE 100 stock that has already seen it’s yield grow is Standard Life (LSE: SDLF) – formerly known as Phoenix Group. A fall in share price over the last month or so has helped push the dividend yield up to an impressive 8.17%. I think it could be worth considering.

The defensive nature of the insurance business might insulate it from some of the worst effects of any economic turbulence too. Defensive stocks are prized when things get rocky because the revenues are relatively stable. In the case of retirement savings and life assurance, folks don’t tend to cancel at the first sign of trouble. Luxury spending like watches or jewellry tends to be the opposite, for example.

That’s not to say there is no risk. Its large asset base is sensitive to quick changes in interest rates, which can affect its value. The recent u-turn from the Bank of England – on the back of the conflict in Iran – to suggest rates will be going up this year could pose a problem for the company.

Only time will tell if a stock market crash does come our way this year. But if it does, I’m sure there will be opportunity in the markets as there always has been.

The post A 2026 stock market crash could be a rare passive income opportunity appeared first on The Motley Fool UK.

In pole position

At 9%, Legal & General‘s (LSE:LGEN) the Footsie’s highest yielder. In 2025, the insurance, pensions, and asset management group reported a 6% rise in its core operating profit to £1.62bn. In addition, assets under management (AUM) increased by 5% to £1.2trn.

Looking ahead to 2026, the group expects its earnings per share to grow at the top end of its 6%-9% annual target.

One area to keep an eye on is its balance sheet. During the year, its Solvency II ratio fell from 232% to 210% (the regulatory minimum is 100%). And given recent events, I’m sure the £235bn of equities that the group directly owns have taken a bit of a hit.

However, it last cut its payout during the global financial crisis in 2009. Importantly, its pension risk transfer arm continues to secure plenty of large schemes to manage. This should aide further dividend increases and, in my opinion, makes it an income stock to consider.

Same but different

Retirement specialist Standard Life (LSE:SDLF), which recently changed its name from Phoenix Group, expects an impressive £155m (16.4%) year-on-year improvement in adjusted operating profit for 2026. It’s also hoping to generate £500m of free cash.

Positively, analysts are also forecasting a 9% increase in its payout by 2028 compared to 2025. It’s currently yielding 8.3%.

With 12m UK customers – one in five adults — it’s particularly sensitive to a domestic economic slowdown. If incomes are further squeezed pension contributions are likely to be one of the first casualties. Its margin could also come under pressure.

However, since its formation in 1825, it’s survived many more challenging times. And it’s operating in a growth sector. The £3.6trn UK retirement income and savings market’s expected to grow to £6.1trn by 2034. This should help it deliver the earnings and dividend growth that make it, I believe, a share worth considering.

Last, but not least

M&G (LSE:MNG) had a great 2025. During the year, the wealth manager reported £7.8bn of net cash inflows compared to outflows of £1.9bn in 2024. Along with some impressive investment returns, this boosted its AUM from £345.9bn to £375.9bn. It also lifted its Solvency II ratio from 223% to 242%.

This improved financial performance helped deliver a 2% increase in the group’s full-year dividend. Its annual payout’s been increased every year since its demerger from Prudential in 2019.

Threats to its dividend include increased competition plus lower income than anticipated from its huge investment portfolio. However, 2026’s expected to be another good year, making the dividend look reasonably secure for now. Along with its 7.4% yield, it’s an income stock to take a close look at.

Huge potential

Of course, dividends can’t be guaranteed. However, all three have strong track records of delivering impressive levels of income.

And by reinvesting the cash it’s possible to create significant long-term wealth. For example, a £15,000 investment (£5,000 in each) could grow to £107,590 after 25 years. At this point, a yield of 8.2% would deliver annual income of £8,822.

That’s why dividend shares are so popular with UK investors.   

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The annual deadline for this year’s £20,000 allowance is 5 April, and with Easter in the way, there’s no time to lose. So how large would an ISA need to be to produce £750 a month in passive income? Let’s do the sums.

Investing little and often

That monthly income equates to £9,000 a year, a handy top-up to the State Pension and other income sources. And it’s completely tax-free.

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.

Under the ‘4% rule’, if an investor takes that percentage of their capital as income each year, the underlying pot should never run out. To generate £9k under that rule, an investor would need £225,000. That may seem daunting, but investing slowly and steadily can make it more achievable than many think.

Let’s take an example of someone building a balanced portfolio of FTSE 100 shares, generating an average total return of 7% a year. If they were 20 years from retirement, contributing £450 a month would give them £236,875 when they stopped working. Stretch the time horizon to 30 years and the same monthly contribution swells to £545,794. Using the 4% rule, that generates income of £1,819 a month or £21,832 a year. That’s way above my initial target.

Investors can potentially do better than 7% by selecting individual FTSE 100 stocks. That’s what I do.

Meanwhile, today’s stock market volatility also presents opportunities for those with a long-term perspective.

Standard Life offers a super-sized yield

Shares in insurer Standard Life (LSE: SDLF), which recently rebranded from Phoenix Life, have fallen around 15% in the last month. They’re far from alone, as the Iran crisis spooks investors. For long-term investors, such swings are normal. Markets fell sharply after the pandemic, the war in Ukraine and Donald Trump’s ‘liberation day’ tariffs, but soon rebounded strongly.

Standard Life’s yield has risen to a thumping 8.7%, the second-highest on the FTSE 100. That income alone exceeds the annual compound return used in my calculations above. Of course, dividends aren’t guaranteed and could be cut if the crisis persists. Before the recent shock, the board’s strategy was to increase dividend by a steady 2% a year.

There are other risks. Standard Life operates in a competitive market and has to continually deliver new business to keep the revenue cash flowing. A full-blown market crash could hit the value of the assets it holds to protect against liabilities.

Yet I hold this stock and I’m now considering buying more, to take advantage of today’s lower price and more generous yield. A spread of FTSE 100 shares like this can help build a high-and-rising passive income for retirement.

Markets are volatile but opportunities abound. Investors able to focus on the long-term can find excellent bargains out there, and potentially bag themselves an even more generous second income.

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