Whenever talk of stock market investing pops up, the topic of passive income is never far off. These days, it has become increasingly popular to target income through investments — particularly with the rise of mobile trading apps.

But first-time investors are often underwhelmed by the short-term returns, and they quickly give up. That’s unfortunate, because in investing, patience and dedication is the only way to win.

That’s why it’s so important to plan your strategy beforehand and figure out exactly what to expect. When you understand what’s possible over a 5-10 year period, it’s far more appealing to keep going.

First things first

If you don’t already have a Stocks and Shares ISA, it’s worth considering. The tax benefits alone can equate to thousands of pounds in savings over the long run. For most UK residents, it’s possible to invest up to £20,000 a year with no tax on dividends or capital gains.

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.

That also makes calculations easier. So let’s see what’s possible:

When it comes to income investing, I wouldn’t forecast returns much above 7% on average. It’s possible — but only for very experienced dividend investors with a high risk tolerance.

When factoring in capital gains, the total return may be higher, but for this exercise I’m just looking at yield. So how do we target returns of £3,000 a year? 

Assuming the 7% yield held and you reinvested all dividends for 10 years, the pot would grow to £39,343, paying out £2,754 in annual dividends. One more year, and you’d have hit that £3,000-a-year target.

Plus, you’d have doubled your investment. So what magical stocks can actually achieve a consistent 7% yield?

A rare high-yielder

Standard Life (LSE: SDLF), previously Phoenix Group, has maintained a yield between 6% and 9% for much of the past decade. At times, it’s even reached 12% — although that’s unusual and typically due to a drop in price.

What’s impressive is the consistent growth — dividends have increased almost every year since 2010, at an annualised rate of 3.18%. That’s important, because otherwise they steadily lose value to inflation.

Bolstering its income stability is a diverse operational mix, combining retirement savings, workplace pensions and insurance. That helps the company to better stay afloat through market volatility. Add to that a Solvency II coverage ratio of 176% and you have a fairly trustworthy stock.

But no stock’s perfect. In its FY2025 results, Standard Life posted a statutory loss of £394m due to “hedging-related volatility“. If the company needs to dig into cash reserves to cover losses, a dividend cut isn’t off the cards.

The bottom line

Investing in a solid portfolio of quality dividend shares can deliver outsized returns, but it won’t happen tomorrow. Patience is a virtue, and commitment is the magic ingredient. Even a large initial investment like £20k can take time to compound — but it can also be built up with regular monthly contributions.

In the end of the day, decent stock-picking is key — and Standard Life’s certainly one to consider. But there’s another income share that I think could be even more appealing right now…

What income stock do we like better than Standard Life 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.

Mark Hartley owns shares in Standard Life.