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How does a passive income of £3,000 a month sound? Pretty good, right? While is does carry some risk, I’m convinced the best way to aim for income like this is by buying dividend stocks in a Stocks and Shares ISA.
It allows investors to harness the incredible wealth-creating power of the stock market. And with protection from income tax, every penny of income is protected from the grasp of HMRC.
But how large would your ISA need to be to generate a life-changing £3k income? It might not be as large as you think.
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Targeting passive income
The answer to this question is a simple one of dividend yield. A higher yield means more income for every pound invested.
The long-term average yield for the FTSE 100 index sits at between 3% and 4%. The UK stock market’s packed with top shares that sport yields well above that level than that. Many have dividend yields double those levels, at 8%, or higher.
At this yield, someone targeting a £36,000 yearly (or £3,000 monthly) passive income would need £450,000 in their ISA.
11.1% dividend yield
Investing in higher-yield stocks with an ISA like comes with risk, though. The delivery of market-beating dividends to investors can be unsustainable. Large cash distributions can also be a signal of a company in distress.
Dividend chasers can effectively manage this risk, though, with careful research and by building a diversified portfolio. An ISA of 15-20 shares or more can reduce the impact of any single company pausing or cutting dividends on overall returns.
The Renewables Infrastructure Group (LSE:TRIG) a dividend stock I really like to build passive income. In fact, it’s one I hold in my own Stocks and Shares ISA. With an 11.1% forward dividend yield, it could be one of the best dividend providers in an average 8%-yielding portfolio.
TRIG (for short) is one of the FTSE 250‘s best dividend shares to consider, in my view. Dividends have risen almost every year since it listed on the London stock market in 2013.
An oversold income star
But why is the dividend yield so high today? Investor confidence in the company is low and its share price dropped sharply in 2025. Weak wind generation, rising industry costs for new projects and higher-than-normal interest rates have dragged its share price lower.
I’m optimistic the trust will rebound sharply over time, though, even as these threats endure. The push to green energy continues at breakneck pace, and TRIG — which operates a large portfolio of wind and solar farms across Europe — is well placed to capitalise on this.
In the meantime, the steady stream of cash it enjoys should help it keep paying enormous dividends while the share price takes time to recover. Today it trades at a 37% discount to its net asset values, making it worth a close look from bargain-loving dividend investors.
Bottom line
In my view, a £450,000 ISA is a realistic target for sensible and patient investors. Based on an average annual return of 9%, someone could reach that magic number by investing £402 a month over 25 years.
This story originally appeared on Motley Fool
