Investing in a Stocks and Shares ISA investing is a fabulous way to build a passive income for retirement. So how much do you need in your portfolio?
The answer depends on the yield. Right now, a popular choice for long-term ISA investors is to build a diversified spread of FTSE 100 shares offering both dividend income and growth. UK blue-chips offer some of the most generous dividends in the world. The average yield across the index is currently around 3.3%.
How much income could I hope to get?
Let’s say somebody had £299,000 in their portfolio. If they put their money in a FTSE 100 tracker, they’d get £9,867 a year. Or £822 a month. And that’s without touching their capital. That’s fine, but it’s possible to get a yield of 5%, 6% or even 7%, by investing in the more generous dividend stocks on the index. Let’s see what you can get then:
- 5% yield – £14,950 a year
- 6% yield – £17,940 a year
- 7% yield – £20,999 a year
A yield of 7% would be pretty tricky to maintain. But it is possible. Legal & General Group is the most generous income stock on the FTSE 100 with a bumper 8.7% yield. Standard Life is in second place yielding 7.3%, while real estate investment trust Land Securities Group yields around 6.9%.
One stock I’d consider for a high income portfolio today is Barratt Redrow (LSE: BTRW). It’s now the UK’s biggest housebuilder but like the rest of the sector, it’s taken a beating lately. The Barratt Redrow share price is down 43% over the past year and 66% over five. What’s going on?
House builders were slammed by the cost-of-living crisis, which drove up mortgage rates and worsened affordability issues. They were also hit by the end of the Help to Buy scheme in 2023, and the cladding fire safety scandal that followed the Grenfell tragedy. This year looked more promising with inflation and mortgage rates expected to fall. Instead, they’re rising due to Iran.
Can this FTSE 100 stock bounce back?
As a result of all this, the shares look cheap. Today, the forward price-to-earnings ratio sits around 10.2. That’s pretty low. The trailing dividend yield is a bumper 6.5%.
A word of warning. The forecast yield is 5.5%. On 11 February, Barratt Redrow cut its interim dividend by 9% to 5p per share. That followed a 13.6% decline in adjusted pre-tax profit to £199.9m. The forecast yield is 6.1% in 2027, but we’ll see. Dividends are never guaranteed. Yet I still think it’s worth considering for brave investors willing to take the long-term view. So what’s swung my decision?
Barratt Redrow boasts a strong balance sheet with net cash of around £550m to £650m. At some point the investment cycle will swing and when it does, its shares could recover at speed. No guarantees though. Things could get worse before they get better. But I think this stock could form part of an ISA portfolio, for those keen to build a generous second income, and with luck, grab some share price growth as well.
