A Stocks and Shares ISA can be a powerful wealth-building tool for investors prepared to play the long game. By regularly purchasing dividend shares and reinvesting the income, it’s possible to build a substantial portfolio over time.

For example, what if you invested £1,666 every month for 20 years at a healthy yield? Let’s crunch the numbers.

Making the most of the ISA allowance

The annual Stocks and Shares ISA allowance currently stands at £20,000. That works out to roughly £1,666 a month, allowing investors to build wealth without paying tax on dividends or capital gains.

Over 20 years, contributing £1,666 monthly would add up to £399,840. That’s a significant sum already. But thanks to the power of compounding, the final portfolio could be worth considerably more.

The amount depends on the returns achieved. And one way to generate these is by investing in quality dividend-paying businesses.

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.

Turning dividends into long-term wealth

Suppose I could achieve an average dividend yield of 5.5% each year. Assuming I reinvested every dividend, maintained that yield, and saw absolutely no share price growth, my £1,666 monthly contributions could grow to approximately £726,000 after 20 years.

If the contributions were switched off and the 5.5% yield continued, that would equate to nearly £40,000 of annual dividends.

Of the £726,000 portfolio value, just under £400,000 would come from my own contributions. The remaining £326,000 would be generated through compounding returns. That’s quite a result without relying on rising share prices!

Of course, this calculation assumes a constant yield, monthly compounding, and no investment fees. Actual dividends are paid less frequently, and future returns will almost certainly fluctuate.

Nor is a dividend ever guaranteed. That’s why I think focusing on sustainable payouts from high-quality companies is far more important than simply chasing the highest yields.

A dividend stock worth considering?

One UK dividend share that catches my attention is Aviva (LSE: AV). At 730.2p, as I write on Friday afternoon (6 November), its shares currently offer a 5.5% dividend yield. And the underlying business has been performing well.

During the first half of 2026, the company’s operating profit climbed 24% to £1.33bn, while its interim dividend increased 7% to 14p per share.

The acquisition of Direct Line also presents an opportunity to unlock cost savings and strengthen its position in the UK insurance market. Management’s targeting £225m in annual cost synergies from the deal.

However, there are risks. Integrating such a large acquisition isn’t straightforward, and competitive pressures in the insurance market could squeeze margins. Meanwhile, unexpectedly high claims costs or weaker investment markets could weigh on earnings and future dividend growth.

These are important considerations, particularly given the potential 20-year timeframe I’m looking at.

Nevertheless, with its diversified insurance and wealth operations, improving profitability, and attractive dividend yield, I think the company deserves consideration from income-focused investors.

As for my own portfolio, I already have plenty of exposure to financial services. So while I like the income potential here, there are other opportunities I’ll be considering ahead of Aviva right now. 

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Ken Hall does not own shares in any of the companies mentioned.