It’s almost that time of year again. Apart from an Easter egg or two, I’m looking forward to the start of the modern Stocks and Shares ISA season. This year I’m focusing on dividends.

In my opinion, dividends are a great way to earn passive income. But how much does it really take to earn £2,000 a month?

It depends. If an investor wants to make an income soon, my trusty calculator tells me he’ll need between £300,000 and £600,000. But why the vast range?

This is because it really all depends on the dividend yield. At a rate of return of 4%, the investor would need PLN 600,000. pounds, but at a rate of return of 9% he would only need 300,000. pounds.

Many income funds offer returns of 4% to 5%. That said, experienced pickers can pick a few FTSE100 dividend stocks yielding over 6%.

A smarter way

Either way, it’s a sizeable pot. A wiser approach would be to plan ahead. Instead of focusing on passive income in 2026, an investor could build income over time with much less cash up front.

This can be achieved by owning dividend-increasing stocks and reinvesting the dividends to buy more shares. These, in turn, generate more dividends, which buy more shares. The snowball effect is an effective way to accelerate investment growth.

Many reliable dividend stocks come from solid FTSE 100 companies. Get in Legal and general information (LSE: LGEN), the company that quietly provides millions in pensions, life insurance and asset management.

It has been reliably paying dividends to shareholders for decades. And for the extensive majority of those years, it managed to enhance its dividend payments.

It currently offers a high dividend yield of 8.9%. This is the highest rate of return on the FTSE 100 index. The company has also committed to continuously increasing its dividend.

The highest dividend stocks on the FTSE 100

Legal & General should benefit from long-term trends in the coming years. For example, aging societies should drive demand for retirement solutions.

Of course, even the most solid dividend stocks are not risk-free. If the economy experiences a prolonged period of weakness, this could put pressure on profits. The recent decline in the company’s share price reflects short-term disappointment with loss of profits and market volatility caused by the war in the Middle East.

Maximizing your Stocks and Shares ISA

Coming back to the amount an investor would need to achieve to achieve a monthly income of PLN 2,000. pounds, let’s look at this illustration.

Let’s say they invested £20,000 a year in Legal & General shares and the dividends were reinvested and grew at 5% a year. My trusty spreadsheet shows that it will take just eight years to exceed your income target.

I calculate that at the end of year eight the portfolio will be worth £264,769 and the annual dividend income will be £29,467. But here’s the most fascinating part. The investor would only put in £160,000. This is far from the previously mentioned 600,000. pounds.

Personally, I prefer to own several dividend stocks rather than one, so I don’t put all my eggs in one basket.

But here you go. Regular investment in a stocks and shares ISA, a bit of patience and a stable company could be enough to say goodbye to your 9-to-5 job.