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A Stocks and Shares ISA can be a huge asset for anyone looking to start investing. For those trying to generate a monthly income, not having to pay dividend taxes is extremely valuable.
There’s an annual contribution limit of £20,000. But for investors with enough time and patience, I think aiming at £1,000 a month in passive income is a very realistic ambition.
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Interest rates
Exactly how much you need to try and earn £1,000 a month depends on a few things. One of those is the level of the stock market, which is heavily influenced by interest rates.
When interest rates are low, share prices generally go higher. And that means it can be harder to find investment opportunities that can generate big returns.
By contrast, when rates are higher, cash provides better returns and this can cause share prices to fall. In these situations, there are often better opportunities available.
For most of us, there’s nothing we can do about interest rates. But it is worth us noting that they’ve been falling recently – so the time to act might well be now.
35% yield!?
Strictly, there are investments available that seem to offer some huge returns. One of them is the IncomeShares Magnificent 7 Options ETP, which has a 35% dividend yield.
At that rate, £34,800 invested in a Stock and Shares ISA is enough to generate a £1,000 monthly income. But there is – unsurprisingly – a catch.
The cash distributions from the product (a complicated covered call strategy) have caused its share price to fall. Factoring in those losses, the total return has been 25% since June 2025.
That’s within 10% of what someone would have managed by just owning the underlying stocks. So I’m not convinced this type of product is some sort of stock market cheat code.
More realistically
With interest rates where they are, I think a more realistic target is around 5%. And there are a few stocks – such as Diageo (LSE:DGE) – that offer this at today’s prices.
Diageo has struggled recently for a number of reasons. Some of the main causes have been tariff costs and a weak macroeconomic environment and the risk is that they continue.
A turnaround, however, could be on the cards. Sir Dave Lewis has taken charge with a view to fixing company-specific faults, but I think there might be more to look forward to than this.
I’m expecting US trade relations to improve in 2026. And if that happens, sales and profits could pick up for the business in a meaningful way.
Monthly income
If I’m right about Diageo, it’s an unusual opportunity for income investors. The 5% yield means someone with £240,000 in an ISA has a realistic shot at £1,000 a month.
There’s no way an investor should be thinking of going all-in on one stock. But as part of a diversified portfolio focused on generating passive income, it’s definitely worth considering.
Nobody can put £240,000 into an ISA in one go. But at 8.5% a year – the FTSE 100’s recent average – investing £20,000 a year could get them there before the end of 2034.
