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The main ISA’s Stocks and Shares tool I use, alongside millions of other UK investors. Although my ISA is a mix of different types of stocks, I would focus exclusively on buying dividend shares to generate income over time.
Based on some of the dividend benefits available right now, here’s how I can make a decent amount of money.
Squeezing a lemon
The first element in this strategy is to put all my attention and money into income-generating stocks. My ISA limit is £20k a year. This is not a free money offer, rather it means I can invest up to £20k so I can still enjoy the tax benefits associated with an ISA.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
I may not be able to afford to invest every month to finish £20k, but for the purpose of this strategy I will assume that I can. To maximize my leverage, I want to pick the highest return stock each month. This list changes from month to month, so I won’t invest everything at once. Being patient allows me to jump on opportunities as they arise.
Any profits I get I will reinvest back into the stock market. This means I can benefit from compounding, helping my future income stream build quickly. What’s more, by using my ISA, I don’t have to pay capital gains tax, which means I keep the extra payout.
Targeting high yield
I feel that I can buy high yielding stocks that are also sustainable in nature. Best example I can think of Taylor Maritime Investments (LSE:TMIP). The investment trust has a dividend yield of 7.89%, and the share price has increased by 3% over the past year. I am considering adding the stock to my portfolio.
The trust is a specialist bulk shipping investment company. It owns a fleet that aims to monetize both through capital appreciation but also through ongoing income. The income comes from the fact that boats are often rented out on fixed period charters.
Such charters can be a reliable source of income. In the latest quarterly review, it was noted that the average charger time is equivalent to £11,141 per day. This is up 12% compared to the same quarter last year. The budget cover is currently around 2, which means that the benefits are continuous and not eating into the gross income.
Unfortunately, these types of vessels tend to degrade over time. The company aims to buy used boats that it believes are of little value. However, this may not be the case and it is something to be aware of.
Looking at the numbers
If I managed to build a portfolio of shares with an average yield of 7.5% and used a limit of £20k each year, my pot would grow rapidly. After ten years, my portfolio would be £299,950. This means that for the next year, I could afford £1,874 a month.
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