Invest money now, reap the rewards later

To illustrate how that might work in practice, imagine someone has a spare £9,000 today. They put that into a share-dealing platform (like a Stocks and Shares ISA or share-dealing account) and then compound it at 7% annually.

That means they do not need to pay in another penny, but any dividends received are reinvested. Share price growth could help boost the value, although falling share prices could eat into it.

At that 7% compound annual growth rate, after 20 years the portfolio ought to have almost quadrupled in value to around £34,800. At a 7% dividend yield, that could mean an annual second income of roughly £2,438.

Not rocket science, but good practice can help

In today’s market, I think that 7% target is achievable when sticking to well-known, blue-chip companies with proven business models.

I do think some principles of good investing can help improve the chances of success though, from diversifying across multiple shares to taking a long-term approach to investing.

Sticking to what you understand sounds obvious, yet not all investors do it, moving closer to speculation than investing.

What makes an attractive dividend share?

When investing to try and build a second income, I like to stick to what I know, but that does not mean just looking at the world as it is now.

Dividends are never guaranteed, so it is important to consider what a company’s future dividend prospects are, not just its current or past payout. To assess that, I try to judge what I think its free cash flows will be over time.

For example, Rolls-Royce may well increase its free cash flows in coming years as it continues to deliver on its business goals. Then again, the Middle Eastern conflict could hurt demand in its civil aviation division. Either way, even if free cash flows do grow and the dividend follows, the current yield is only 0.7%. From an income perspective I do not find the share attractive.

Going up in smoke, or will the cash keep flowing?

By contrast, a different FTSE 100 share I think merits consideration at the moment by investors with an eye on a second income is British American Tobacco (LSE: BATS). The yield here is a much juicier 5.6%. British American Tobacco has also grown its dividend annually for decades, and aims to keep doing so.

One risk that could prevent that is the decline in cigarette smoking. Sales volumes, after all, are falling. But the firm’s premium brand portfolio allows it to mitigate that to some extent by raising prices. But even so, revenues are in decline.

But while the sales trend is negative, tobacco remains big business. British American remains highly cash generative. I expect that to remain the case for many years.

Not all investors are willing to own tobacco shares for ethical reasons. For those who are and are on the hunt for some extra passive income, I see this as one to consider.

What income stock do we like better than British American Tobacco P.l.c. right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Christopher Ruane does not hold any positions in the companies mentioned.

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There are many examples. To illustrate my point though, let me zoom in on British American Tobacco (LSE: BATS). I think it is possible that SpaceX’s share price growth in the coming decade will far outstrip British American Tobacco.

Despite that, I have no plans to invest in SpaceX. But I do see British American Tobacco as a share to consider, at least for investors who can stomach the ethical question of investing in tobacco.

Understanding this apparent paradox helps to illustrate a number of important investing concepts.

Income matters as well as share price growth

One is the concept of total shareholder return. That consists of share price growth (or dips) during the period of ownership, as well as any income from dividends.

SpaceX does not pay a dividend and as a lossmaking business focused on growth I do not expect it to do so in years to come.

By contrast, British American Tobacco yields 5.3% — and has grown its dividend per share annually for decades.

A growing market can help a company, or hinder it

Another question is how to assess the companies’ respective growth prospects. Cigarette use is in long-term decline. British American Tobacco’s portfolio of premium brands gives it pricing power that can help it mitigate this, but even so its revenues have been falling for several years in a row. That said, tobacco remains a large market.

By contrast, SpaceX benefits from a market that is not just big, but is set to grow substantially. From space exploration and satellite wifi to social media and AI, SpaceX is firmly positioned where the growth is.

That seems good – and it can be. But it also has a downside. In a mature market like tobacco, competition has typically been weeded out and there remain a few big firms who can do a solid but not spectacular business.

Fast-developing markets often attract a lot of competition. That can eat into profitability for decades as rivals compete to succeed, often through scaling up fast.

Some will succeed, while many fail. So as new market areas emerge, there can be some spectacular stock market winners – but also lots of losers.

Here’s why I’m avoiding the stock for now

Will SpaceX be a winner, or a loser? Nobody knows for sure. Given its current strong position, access to capital and entrenched user base, I think there is a fair chance that at least some parts of the firm’s business will do very well in coming years and decades.

So why am I not investing? First, the business model remains unproven. SpaceX is loss-making. Second, the current valuation looks unjustifiable to me. Once the business is more established, I think it will be easier to judge what SpaceX is really worth.

If the business does brilliantly, I think SpaceX stock could soar in years to come even from its current level. I see less scope for explosive growth at a mature company in a declining industry, like British American Tobacco.

But its business outlook and therefore valuations seems far easier to assess – and it offers a tasty dividend.

What income stock do we like better than Space Exploration Technologies Corp. - Class A right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Christopher Ruane does not hold any positions in the companies mentioned.

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Compare that to a very old passive income plan that people have been using for centuries and is still widespread today: putting money into proven businesses that look likely to pay dividends in future.

That involves some effort when it comes to deciding what shares to own and then buying them. But over the long run it strikes me as passive.

When it comes to the likelihood of generating meaningful income, success depends in large part on how much is invested, as well as the dividend yield earned.

Start now and watch the income flow

Some shares never pay dividends while some pay erratically (and, no dividend is ever guaranteed to last). Some pay quarterly and others even pay monthly.

So if someone was to get going now, it is plausible that they could be earning passive income as early as the end of this summer.

A useful first step would be to set up a share-dealing account, Stocks and Shares ISA, or trading app.

After that, someone can put money in and decide what shares to buy. In any size of portfolio, diversifying across different shares is an important risk management strategy.

Income depends on investment size and yield

As I said above, dividends can move around. They can be cancelled or cut, but also increased. Nvidia this year increased its dividend by a phenomenal 2,400%. That is exceptional, though.

The yield matters when it comes to calculating likely income.

Passive income earned annually is basically the amount invested multiplied by the yield. So, for example, £10k earning a 3% yield (the current FTSE 100 average) ought to earn around £300 of passive income per year.

Here’s an income share I think’s worth considering

Although that is the FTSE 100 average, I think it is possible to target a higher yield while sticking to proven blue-chip businesses.

For example, British American Tobacco (LSE: BATS) is a FTSE 100 business that has grown its dividend per share annually for decades. It currently yields 5.3% and pays dividends quarterly. The next is due to be paid next month, and investors who own the share by the time it goes ex-dividend this Friday (10 July) should be in line to receive that.

Can the dividend keep growing?

Declining cigarette demand is a risk to revenues and profits for the Rothmans maker. Some investors may also be put off by the ethical concern of investing in a tobacco company.

But British American has been battling challenges for decades already in terms of cigarettes declining in popularity. Yet it remains hugely cash generative.

It aims to keep growing its payout per share annually. Recently, the company announced plans to cut costs that could help boost profitability.

With its strong portfolio of premium brands, extensive global reach, and proven cash generation capabilities, British American Tobacco offers a lot to like from a passive income perspective.

What income stock do we like better than British American Tobacco P.l.c. right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Christopher Ruane does not hold any positions in the companies mentioned.

The post Here’s a simple way to start earning regular passive income before the end of summer appeared first on The Twelfth Magpie.

That means no income tax, no dividend tax and no capital gains tax. This is really handy when building your wealth while working, as your money rolls up tax-free. And it’s even more useful when you retire, as you can take one-off gains or a regular weekly or monthly income without handing a penny to HMRC.

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.

It can also help you manage your wider tax bill, for example, by upping ISA withdrawals to avoid making too many taxable pension withdrawals in any given year. So how much do you need to bag a decent tax-free income in retirement?

How much capital is needed?

For the sake of this article, I’ve chosen a target income of £375 a week. That works out as £19,500 a year. The amount of capital you need to achieve that depends on the yield across your portfolio:

• With a 4% yield, you’d need £487,500 invested.
• At 5%, the required total falls to £390,000.
• And at 6%, the figure drops to £325,000.

A hugely popular way to bag a higher yield is to invest in a spread of FTSE 100 shares that pay above-average dividends. Some yield as much as 5%, 6%, or well above 7%. This doesn’t simply mean going for the highest yield you can find, but looking for companies that have the ability to maintain and increase shareholder payouts over time.

Most companies aim to increase their dividends each year but, inevitably, some are better at it than others. Cigarette maker British American Tobacco (LSE: BATS) boasts a particularly strong track record. It has increased dividends every year this millennium.

Worth a look?

It’s able to do that because tobacco makers generate plenty of cash from their addicted customer base. Although smoking is declining in the West, British American Tobacco still sold 465bn cigarette ‘sticks’ in 2025. It’s done this by using its brands and scale to take a bigger share of a shrinking market. The board’s also targeting new revenue lines from smokeless alternatives, vapes and nicotine pouches.

Today, British American Tobacco has a trailing yield of 5.1%. That’s comfortably above the average FTSE 100 of yield 3.3%. While often seen as an income stock, share price growth has been pretty impressive. The stock’s up 38% in the last year. That’s on top of the income.

Share price growth’s never guaranteed. Nor are dividends. The tobacco sector will remain under constant regulatory pressure and may be prone to expensive class action lawsuits. The bills could run into billions. And, of course, smoking kills.

I think British American Tobacco shares are worth considering from an investment point of view, but understand many won’t want to buy the stock for other reasons. They don’t need to, because there are lots of other FTSE 100 shares offering similar income and growth prospects.

Should you invest £5,000 in British American Tobacco P.l.c. 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 British American Tobacco P.l.c. made the list?

Harvey Jones does not hold any positions in the companies mentioned.

The post How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement? appeared first on The Twelfth Magpie.

Let’s find out!

Matching the State Pension

Different people earn different amounts in a State Pension, based on factors like how many years of National Insurance payments they’ve made.

At the moment, the full basic state pension’s £241.30 per week, or just under £12,550 per year.

How much someone would need to invest in dividend shares to try and earn that amount from them (in addition to their State Pension entitlement) depends on the average yield of the portfolio.

At the current FTSE 100 yield of 3.1%, it’d take a portfolio close to £405k. At 5%, that’d drop to around £251k.

Taking a long-term approach to financial planning for retirement

Put like that, it may sound daunting.

But retirement’s something that a lot of people think about in advance and can take a long-term approach towards.

So, for example, say someone decided to put £1,000 a month into their Stocks and Shares ISA and was able to compound it at 5% annually. Doing that, within 15 years, the ISA ought to hit the target size.

With a Self-Invested Personal Pension (SIPP), the pace could be even quicker. Thanks to tax relief, that monthly £1,000 would actually translate into £1,250, allowing the 15 year timeframe to be shortened by a couple of years.

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.

Choosing the right shares is important

That’s the maths. How might it look in practice, though?

The first step would be choosing the right platform to invest through.

While the tax relief element of a SIPP can be attractive, there are other pros and cons to a SIPP — as indeed there are to a Stocks and Shares ISA. So an individual investor will need to decide what’s the best platform for them, then compare potential providers.

After that, they need to get into a habit of regular contribution. That could involve less or more than in my example above but the timeline to achieve their goal would be correspondingly longer or shorter (if putting in more, there is also an upper limit for annual contributions to bear in mind).

They can then start to build a diversified portfolio of shares that hopefully can help them achieve their goal of matching the state pension with dividend income over time.

A share to consider

One FTSE 100 share I think merits consideration is British American Tobacco (LSE: BATS), at least for investors who do not shun tobacco-related shares on ethical grounds.

The owner of Lucky Strike, Pall Mall, and other brands is a cash generation machine thanks to its premium brand portfolio, global reach, low manufacturing costs, and strong distribution network.

That cash generation capability’s enabled the firm to grow its dividend per share annually for decades. It aims to keep doing so, though dividends aren’t ever guaranteed at any business.

Declining cigarette usage is a key risk. Revenues are falling already. That could continue, posing a risk to profits too.

But the company has been navigating weakening demand for decades already and yet remains strongly cash generative.

Should you invest £5,000 in British American Tobacco P.l.c. 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 British American Tobacco P.l.c. made the list?

Christopher Ruane does not hold any positions in the companies mentioned.

The post Double a state pension thanks to dividend shares? Here’s how it could be done appeared first on The Twelfth Magpie.

Its dividend yield is consistently market-beating, and the cash flows behind it remain some of the most dependable in the leading index. There is also a major gap between its price and ‘fair value’, which could provide share price gains.

So what sort of returns am I looking at?

Dividends set to rise?

The firm’s current dividend yield is 5.5%, based on the 240.24p 2025 payout and the present £46.02 share price. That is way more than the FTSE 100 average of 3.1% and the FTSE 250’s 3.4%.

These returns can change, of course, as share prices and annual dividends alter. But analysts project that British American Tobacco will increase its dividends to 251.2p this year, 259.2p next year, and 269.8p in 2028.

These would generate respective dividend yields of 5.8%, 6%, and 6.2%.

How much in returns over time?

So, another £20,000 holding in the stock would make me £17,119 in dividends after 10 years, on the forecast 6.2% as an average.

The figure also includes the payouts being reinvested into the shares to harness the full turbocharging power of dividend compounding.

On the same basis, the returns would rise to £107,861after 30 years — the end of the standard long-term investment cycle. That would mean the holding’s total value (including the £20,000 stake) would be £127,861.

And that would deliver a yearly income of £7,927!

What about share price gains as well?

Historically, the price of a share tends to converge to its fair value. This reflects the underlying long-term business fundamentals rather than the short-term factors driving the price.

Discounted cash flow (DCF) analysis can identify the fair value of any stock by projecting future cash flows and discounting them back to today. Greater uncertainty in those forecasts will increase the discount applied. And differing assumptions sometimes here can produce varying DCF outcomes from analysts.

Using my own assumptions — including an 8.7% discount rate — British American Tobacco appears 32% undervalued at its current £43.37 price.

That suggests a fair value of £63.78. So, if markets continue to converge toward fair value, this will mean the £20,000 holding being worth £29,403!

Is the underlying business solid?

Ultimately, the long‑term investment case rests on steady earnings growth, and here the outlook remains solid. Analysts forecast these will grow by an annual average of 4.5% over the medium term at least.

A risk here is a further tightening in regulatory pressure on tobacco products, which could squeeze margins. Another is any delay in the firm’s transition towards next‑generation products, which could affect cash flow growth.

That said, the company forecast 4%-6% adjusted operating profit growth and 5%-8% adjusted diluted earnings per share growth for 2026 in its 2025 annual results.

My investment view

I already hold shares in the firm, based on its solid earnings growth outlook. This should keep pushing its dividends up — and its share price to fair value — over time, in my view.

Consequently, I will be adding to my holding very soon. And my attention has also recently been captured by a couple of other deeply undervalued stocks offering very high dividend yields too.

Should you invest £5,000 in British American Tobacco P.l.c. 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 British American Tobacco P.l.c. made the list?

Simon Watkins owns shares in British American Tobacco.

The post How much second income am I aiming for with £20,000 in this superb FTSE 100 dividend star? appeared first on The Twelfth Magpie.

We’re currently in a cost-of-living crisis, which means affording the basics for many becomes tougher. Ultimately, this means that people become more cautious with their spending.

However, some industries continue to see strong demand during these periods. Unfortunately, tobacco is one of the products that people don’t cut out when finances are stretched.

That’s why British American Tobacco (LSE:BATS) might look like a great defensive stock. But is it worth investors who don’t have an ethical objection considering its shares?

Recession-resistant

The obvious problem with smoking is that it’s unhealthy… and highly addictive. But that means its consumption remains strong in economically tough times.

With many smokers using it as a stress reliever, it creates an environment where British American Tobacco should thrive.

That said, even if the company copes well during stock market crashes, there are a lot of problems it faces in the future.

A smokeless world

Over time, the number of smokers in the world is slowly extinguishing. For example, in the UK, 45% of the population were smokers in the 1970s. That figure stands at only 10.6% today.

And new legislation will ban selling tobacco to anyone born during or after 2009.

This doesn’t bode well for British American with tobacco being its core product. This has been reflected in its results, with revenue falling 1% in 2025. Moreover, the company expects cigarette volumes to fall 2.5% for the whole sector in 2026.

The good thing is that the firm is trying to pivot away from its reliance on tobacco.

Attempting to adapt

British American Tobacco has recognised that the future of its cigarette sales looks bleak. So, it’s been reacting by ramping up its non-combustible offerings.

The company is actively investing in expanding its alternative products. Vuse and Velo are two of these products that have now become market leaders in the vaping and nicotine pouches sectors, respectively. The firm aims for new-category products to account for 50% of revenue by 2035.

In a release about the first half of 2026, it said:

• New category revenue is accelerating, which has been led by Modern Oral and Vapour, and the company expects mid-teens revenue growth for this in 2026.
• Velo is continuing to deliver excellent revenue growth globally.

This shows that the firm is making good progress toward its aims, with sales of non-combustibles in the first half of 2026 so far exceeding expectations.

This segment is also taking a growing share of its revenue, now accounting for 18.2% of it, based on its 2025 results.

Now what?

There’s no doubt that the company’s shares are a good choice to consider during economically tough times.

However, as a long-term investment, I’m not convinced right now. Yes, non-combustible revenue is growing and becoming more significant, but it’s still only 18.2% of total revenue. The firm is still significantly short of its 50% target, and regulation is also looming over non-combustible products.

The remaining 81.2% of revenue still faces significant challenges. That’s why investors may prefer to look at defensive stocks that don’t face as many difficulties ahead.

Should you invest £5,000 in British American Tobacco P.l.c. 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 British American Tobacco P.l.c. made the list?

Muhammad Cheema does not hold any positions in the companies mentioned.

The post In the event of a stock market crash, is this one of the best stocks to consider buying? appeared first on The Twelfth Magpie.

So why doesn’t everybody do this?

Stock market fears

Many people stay away from the stock market because they worry about losses, big crashes, or simply not understanding how it works. High‑profile events like the dotcom bubble or the 2008 financial crisis still shape how people think about risk.

Yet over the long term, diversified UK shares have historically delivered around 6%–7% per year on average, versus typical cash savings rates of roughly 3%–4% in 2026.

That gap can matter a lot if you’re saving for 10, 20, or 30 years. Still, with hundreds of companies listed, it can feel overwhelming trying to pick the right ones.

That’s where simple rules help: focus on businesses with a track record of paying dividends, solid balance sheets, and manageable debt.

Simplifying dividends

When you’re hunting for good dividend stocks, it really helps to cut through the noise. A stock screener can filter for dividend yield, payout ratio, cash‑flow coverage, and dividend history in one go.

For a cautious investor, a 5%–6% yield is a realistic target that balances income with sustainability, while a payout ratio below 80% suggests the company isn’t paying out more than it can comfortably afford.

Cash coverage of around one to two times the dividend is another useful rule of thumb. Plus, the longer a company has raised its dividend year after year, the more evidence there is that management takes income seriously.

A good dividend stock to consider

Tobacco stocks aren’t for everyone, so if you have a personal objection to smoking this may not be a good fit. Financially though, British American Tobacco (LSE: BATS) may be one to think about as it has long behaved like a classic high‑yield dividend stock.

It pays cash roughly four times a year, with a current annual dividend of about 2.45p per share. Its forward dividend yield is around 5.5% at the moment, although it often exceeds 6%.

The company has covered its dividend payout with its earnings in most recent years, with a payout ratio of about 68.8% forecast for 2026. That sits within the 55%–75% range analysts often cite as sustainable for the sector.

Its latest results show steady revenue and free cash flow that comfortably exceeds the dividend bill, although the business faces headwinds from regulatory pressure and litigation, which can weigh on both profits and share price.

So how many shares net £2,000 a year?

An investment of £40,000 into British American Tobacco at the current yield would deliver roughly £2,100–£2,200 in dividends per year before tax. That’s assuming the yield holds and the dividend is maintained — these things are never guaranteed.

That lines up with the idea of aiming for around £2,000 a year from a 5%‑yielding portfolio.

But never put all your money into one stock. To spread risk, aim to build a diversified portfolio of 10–20 stocks across different sectors such as energy, healthcare, and financials.

That way, you still target £2,000 a year in income, but you’re not betting your entire plan on a single company’s future.

Should you invest £5,000 in British American Tobacco P.l.c. 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 British American Tobacco P.l.c. made the list?

Mark Hartley owns shares in British American Tobacco.

The post Here’s how much you’d need to invest in 5%-yielding dividend shares for £2,000 a year of passive income appeared first on The Twelfth Magpie.

There are a number of different ways. Here are three common ones.

Capital gains

One strategy is to try and earn money thanks to capital gains. In other words, selling shares for more than they cost when bought.

That can be very lucrative depending on the shares involved.

Take Rolls-Royce as an example. The aeronautical engineer’s share price has surged 1,063% over the past five years. So £10,000 invested in June 2021 would now be worth around £116,300.

But that is a paper gain. It is not actual hard cash until the shares are sold.

An ISA can offer shelter from capital gains tax. So, it can be a tax-efficient platform within which to target wealth-building through share price growth.

But, of course, that depends on what shares are chosen – and until they are sold and any gain is crystallised, it is just a paper gain.

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.

Passive income from dividends

An alternative approach can be to try and set up passive income streams in the form of dividends.

This is not mutually exclusive with capital gains. Rolls-Royce pays dividends, but has also delivered bucketloads of capital growth.

But as a rule of thumb, many investors classify shares as being primarily either growth or income shares.

There is no hard and fast dividing line, but British American Tobacco (LSE: BATS) is a useful illustration.

The company does still have some growth opportunities, for example in the non-cigarette tobacco business. But its main business is making and selling cigarettes.

Demand for them is declining – and likely to keep getting lower. Indeed, the company’s total revenues have fallen for several years in a row.

Still, while cigarette demand is falling, it remains a lucrative business – and British American’s portfolio of premium brands gives it pricing power.

That is why it is seen primarily as an income stock (despite a 63% share price gain in five years). It has grown its dividend per share for decades and aims to keep doing so.

The current yield is 5.3%, meaning a £10,000 investment today would hopefully generate around £530 in dividends annually, even before factoring in any increases.

I see it as a share for investors to consider.

Compounding dividends over the long run

Rather than pull those dividends out as cash when paid, though, an investor could choose to leave them inside the ISA wrapper.

That would offer the advantage of the dividends being available to reinvest inside the ISA, without eating into the annual ISA contribution allowance.       

Although that would not provide passive income in ready cash, over time it can be a powerful approach to building wealth and also future income streams.

To illustrate, compounding £10,000 at 5.3% annually for 20 years, it ought to be worth over £28,000. At a 5.3% dividend yield, that could then earn £1,489 in dividends per year.

Should you invest £5,000 in British American Tobacco P.l.c. 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 British American Tobacco P.l.c. made the list?

Christopher Ruane does not hold any positions in the companies mentioned.

The post 3 strategies to try and earn money from a Stocks and Shares ISA appeared first on The Twelfth Magpie.

An extra £675 a month may not sound life-changing, but it works out at £8,100 a year, enough to make a serious difference to retirement finances. Especially since you don’t have to pay tax on it, regardless of what you earn elsewhere.

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.

Why is the dividend yield so important?

So how much would an investor need tucked away in an ISA to target that level of income? The amount required depends on the average yield generated by the investments held.

• At a 4% yield, an investor would need £202,500 invested.
• At a 5% yield, the required sum falls to £162,000.
• At a 6% yield, the target drops to £135,000.

Those are sizeable amounts, but not impossible to reach for somebody investing steadily over many years. A diversified portfolio of income-producing shares could help get there. Some individual stocks yield more than 6% or 7%, although higher yields often come with higher risks.

One dividend stock that regularly catches the eye is British American Tobacco (LSE: BATS). It’s got a reputation as an income machine. Some investors won’t go near Big Tobacco, including me, but that’s a personal choice. Those who are happy to invest have been richly rewarded over the years.

Smoking rates may be declining, especially in the West, but British American Tobacco’s recent revenues have remained remarkably resilient:

• 2025: £25.61bn
• 2024: £25.87bn
• 2023: £27.28bn
• 2022: £27.66bn
• 2021: £25.68bn

It’s managed this by using its brand power to take a bigger share of a shrinking market, and developing alternative nicotine products such as vapes, heated tobacco, and nicotine pouches. For an income stock, the shares have delivered a lot of capital growth lately. They’re up 29% over the last year and 57% over five. The combination of the two can really help your wealth compound and grow over time.

Today, the trailing yield stands at solid 5.2%, while the shares trade on a modest price-to-earnings ratio of 12.9. That valuation doesn’t look excessive to me, especially given the company’s ability to generate cash and reward shareholders. Management still expects revenues to rise by between 3% and 5% in 2026, despite the continued squeeze on traditional cigarette sales.

What risks should I consider?

Governments remain hostile to the industry. Higher taxes, tighter regulations, and marketing restrictions are constant threats. If vaping health concerns grow, lawmakers could clamp down on alternative nicotine products too. British American Tobacco group recently absorbed an $8bn hit linked to a long-running Canadian class action lawsuit. That’s a lot of money. Further legal challenges can’t be ruled out.

For those comfortable with the sector and the unique risks it brings, British American Tobacco remains one of the market’s most powerful income generators. It’s worth considering for long-term income and growth. All of it tax-free in an ISA.

Should you invest £5,000 in British American Tobacco P.l.c. 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 British American Tobacco P.l.c. made the list?

Harvey Jones does not hold any positions in the companies mentioned.

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