Want to earn £500 a month without working for it? I’ve been thinking about that figure more and more — because it sits right in that awkward middle ground where passive income starts to feel real, but also just out of reach.
It’s easy to imagine dividends quietly rolling in each month, especially inside a Stocks and Shares ISA. But the question I keep coming back to is this: how big does your ISA actually need to be to turn that £500 a month into reality? Let’s break it down using realistic UK dividend income.
Crunching the numbers
To generate £6,000 a year in passive income, the size of the ISA needed depends entirely on the dividend yield you assume.
- At a 4% yield, you would need around £150,000.
- At a 5% yield, the figure drops to about £120,000.
- At a 6% yield, you would need roughly £100,000 invested.
So the difference between a conservative and a higher-yielding portfolio can be tens of thousands of pounds in required capital, even for the same income target.
The key question is: what level of yield is realistic to expect over the long term without taking on unnecessary risk?
High yield vs risk
Many investors are drawn to high-yield dividend stocks when building passive income portfolios, and there is nothing inherently wrong with that approach. The key question is always the same: is the dividend sustainable over the long term?
Take Legal & General (LSE: LGEN). Its dividend yield of around 8% is well above the 4%-6% range used in the earlier calculations. At that level, the capital required to generate £500 a month in passive income falls to roughly £75,000.
On the surface, that looks extremely attractive.
The group operates in structurally important markets, particularly pension risk transfer (PRT), which has become a core driver of profitability.
In 2025, the insurer wrote £11.8bn of PRT business. This included a £4.6bn buy-in with Ford‘s pension scheme and a £1.6bn transaction with the BP Pension Fund.
However, the picture is not entirely straightforward. Competition in the PRT market has increased significantly in recent years, and share price performance has lagged some peers such as Aviva.
More recently, rumours have circulated in the City that several parties could be considering a takeover bid. That kind of speculation often reflects how complex and undervalued the sector can appear at times.
What’s the verdict?
On traditional financial metrics, dividend cover looks relatively weak. However, for an insurer like Legal & General, those measures don’t always capture the full picture.
Underlying capital generation — what the business calls Operational Surplus Generation — continues to grow, supporting the dividend. However, future dividend increases are expected to be more modest, with guidance suggesting growth of around 2% a year.
I have owned the shares for several years. From my experience, it’s been a consistent income generator, but not a simple ‘set and forget’ dividend stock.
It remains a useful example of how higher-yielding shares can help accelerate passive income targets. However, it’s far from the only option worth considering, and investors should avoid relying on any single high-yield stock to do all the work.
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?
Andrew Mackie owns shares in Legal & General.
