How to invest in a Stocks and Shares ISA for dividend income

Some Cash ISAs are currently offering around 4%. That for years remains, though. For long-term income, I’ll get dividends from my Stocks and Shares ISA, every time.

And with just days to go before the ISA year runs out, if you want to buy another one, you’ll need to do it clearly.

So, what should you buy? I think it’s a mistake to just look for the biggest dividend on offer.

Long term

Most people who buy shares in an ISA today are investing now to build a passive income stream to take at some point in the future.

So, the goal is to create a very large pot when you need money. For that, I’m looking for a good total return.

Big dividends are no good if they don’t keep going. And falling stock prices can also wipe out cash dividends.

Vodafone looks good on the face of it, but not for me. The forecast yield is over 8%, so why wouldn’t I want it?

Well, in 2014, the share price went up to around 440p. And now it’s down at 89p. Seems like it’s undermining the value. And it won’t get me the money I want in retirement.

Variable

Glencore also raise caution. There is a good result of 8% on the card here. But Glencore has cut its dividend five times in the past decade.

That’s not limiting. But it explains that one year’s dividend is not enough. We need to look for long-term results.

Aviva show different risks. The 2023 yield is 7.5%. But it looks like it will only be thinly covered by income.

That might not be so bad if earnings are adjusted upwards. But another thing to look out for. In order to maintain the dividend for the next year, the company needs to make money to pay it.

Starting an ISA?

What should I buy to start a new Stocks and Shares ISA to build dividend income?

First, I want a dividend that grows over the long term, not one that goes up and down every year. I want enough earnings to cover them as well. And I want to see the stock price continue to rise.

I’m about to start a new ISA with an investment trust or two. I continued City of London Investment Trust, with a yield of 5%. And has raised dividends for 56 years in a row.

I also buy stocks in sectors that I think have a good long-term future, even if they are currently suffering. So for long-term income, I rate banks and homebuilders as one of the best buys right now. I think they are at great bargain valuations.

Risk

There are individual risks with all of these stocks, which I can’t get into here. But the way I deal with it is for variety. For me, it should be an important part of the ISA.

And, this is not an individual recommendation. These are just a few ideas of ways to make income from an ISA.