One of the things I like about having dividend shares in my ISA is the dividend income I can get. This can be useful as a passive source of income. However, I could also reinvest these dividends (something called compounding) to try to enhance my long-term returns.

By doing this, I think I could try to operate the £20,000 ISA to generate £2,000 in dividends a year for the next six years. Here’s how to do it.

Above-average yields from high-quality companies

Imagine I invest a £20,000 ISA at an average return of 7% and reinvest. Leaving aside the impact of share price movements (which may work for or against me), a compound annual yield of 7% would mean that after six years my 7% ISA should be huge enough to generate dividends worth over £2,000 a year.

At this point, instead of continuing to pay compound dividends, I could start paying them as passive sources of income.

7% is well above the average for blue chips FTSE100 business. The average FTSE 100 company currently yields 3.6%.

But that’s just it average. Some stocks offer more, including what I consider excellent companies with forceful income-generating potential.

Finding stocks to buy

Diversification is an vital risk management strategy. Having an ISA of £20,000 pounds, I would like to spread my money across five to ten different stocks.

To illustrate the type of stock I think investors should consider, I’ll expand on two.

One of them is Legal and general (LSE: LGEN).

A company listed on the FTSE 100 index has a track record of frequently increasing its annual dividend. Over the next few years, it plans to enhance the dividend per share at an annual rate of 2%, and it already yields a juicy 8.9%.

Still, no dividend is ever guaranteed. Legal & General cut payouts during the last financial crisis, and I see a risk that the same could happen in the next market crash if policyholders become nervous and valuations of the firm’s investment portfolio suddenly decline.

That said, I like the company’s focus on retirement-related investment products. It’s a massive market and I hope it stays that way. With its focus, industry knowledge and iconic umbrella brand, Legal & General appears well-positioned to reap the benefits.

Outside the FTSE 100

As I said, I like to invest in proven, huge businesses. But I also take into account smaller and medium-sized enterprises, including: FTSE250 index.

For example, one FTSE 250 share that I think income-oriented investors should consider as their ISA is widely known ITV (LSE: ITV).

Its current yield of 6.7% is slightly below the target I mentioned above, but since this is an average, it can still be achieved with the right mix of stocks yielding above and below 7%.

The ITV board aims to maintain the annual dividend per share. But after falling 51% in five years, ITV’s share price suggests the city has doubts.

One threat is the ever-expanding universe of digital competitors that are driving away ITV’s customary audience.

Still, such competition could actually support the ITV division, which rents studio space and offers production assistance.

In the meantime, it is expanding its own digital footprint and continuing to conduct significant business activities.