Earning passive income from the stock market isn’t just for the super-rich. With a bit of discipline and the right approach, building a £500 monthly passive income stream is far easier than most people think. Here’s how.
Five steps to get started
- Create an emergency fund.
- Open a Stocks and Shares ISA.
- Research high-quality dividend shares.
- Build and diversify a quality portfolio.
- Monitor, review, and reinvest regularly.
Steps one and two are boring, but essential.
An emergency fund keeps you from having to sell investments at the worst possible time if life throws you a curveball. Meanwhile, a Stocks and Shares ISA then lets your investments grow free from capital gains and dividend tax, which matters even more in 2026 now that tax-free allowances have been squeezed.
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.
Is this dividend stock up to the job?
Let me bring in a real example. Legal & General‘s (LSE:LGEN) a FTSE 100 insurer and asset manager currently offering an eye-catching dividend yield of around 8%, paying 21.79p in dividends per share each year.
The business is built around three engines: institutional retirement (mainly pension risk transfer), retail savings & annuities, and asset management, with about £1.2trn of assets under management. In 2025, core operating profit rose 6% to £1,623m, and core EPS climbed 9%, while the board lifted the dividend by 2% and launched a record £1.2bn share buyback.
Pension risk transfer (PRT) is a big part of the bull case. The group wrote £11.8bn of global PRT business in 2025, mostly in the UK, cementing its position as a market leader in a structurally growing area.
Add in sticky fee income from asset management and growing workplace pensions, and the result is multiple sources of recurring cash flow that can underpin current and future dividends.
So where’s the risk?
Expert analysts seemingly love the income, but they’re also watching the balance sheet closely. Legal & General’s Solvency II capital ratio has dipped from 232% to 210% as it returns more cash to shareholders. That’s still pretty substantial and signals that the company has plenty of financial strength backing it.
Nevertheless, this dip does suggest pressure’s mounting. And if these capital buffers continue to tighten, Legal & General’s generous dividend could start to look a bit shaky.
As for other risk factors, investors should keep an eye out for credit markets, longevity assumptions in its annuity book, and the possibility that PRT volumes slow if deal-making dries up.
Can this help unlock £500 a month?
To generate £500 a month in passive income today, investors would need around 27,535 Legal & General shares. At today’s share price, that would cost roughly £74,179 – not a small sum by any means.
However, while most investors don’t have nearly £75k lying around, nothing’s stopping even a modest investor from drip feeding small sums each month to build up to this threshold and accelerating the journey by reinvesting any dividends received along the way.
While the risks are real, Legal & General could be worth investigating further as a foundational stock to a new passive income portfolio. And it’s not the only dividend opportunity I’ve got my eye on right now.
Should you invest £5,000 in Legal & General Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Legal & General Group Plc made the list?
Zaven Boyrazian does not hold any positions in the companies mentioned.
