Here’s how a Stocks and Shares ISA can generate a monthly income of £700

There are many dividend-paying companies in the UK market, and it’s achievable to aim for a Stocks and Shares ISA capable of yielding 4% a year.

To get £700 monthly from a 4% dividend income, the value of the portfolio would need to be around £210,000. But it’s possible to build the value of an ISA account over time. One way is to invest regular monthly sums of money, perhaps while earning an average salary.

Targeting compounded returns

Meanwhile, the long-term compounded total return from the stock market is often quoted at about 7% or slightly higher. Billionaire US investor Warren Buffett reckons the compounded annual gain of America’s S&P 500 index since the 1960s is running at just over 10%.

Let’s imagine two investors manage to invest £300 and £500 monthly in their Stocks and Shares ISAs. Here’s an illustration of how long it may take each of them to compound their portfolios to a value of £210,000 if they earned 7% or 10% compounded annual gains.

Such gains aren’t guaranteed, but the illustration comes from a compound interest calculator and shows what’s possible over a reasonable time frame.

When it comes to choosing investments within the Stocks and Shares ISA, one way forward is to diversify between several. For example, an S&P 500 index tracker may prove to be a decent base investment. But investors also often go for shares of individual UK companies paying high dividends. Another approach is to target firms that are growing their shareholder payments.

However, key to a successful portfolio-building strategy is the process of reinvesting dividend income along the way to help keep the overall gains compounding.

A strong record of dividend growth

DCC (LSE: DCC) looks interesting. It operates in the international sales, marketing, and support services sectors.

The company’s in the FTSE 100 index, and with the share price in the ballpark of 5,195p, the market capitalisation’s around £5.1bn.

Revenue, earnings, cash flow and dividends have all been growing over the past few years, including through the pandemic.

One attraction is the way the success of the business has driven strong dividend progression. The multi-year compounded annual growth rate of the dividend is running at just over 7% — just the sort of growing income that could help to build up a Stocks and Shares ISA over time.

DCC operates in the energy, healthcare and technology sectors and aims to acquire, improve and grow diverse businesses. However, there’s always the risk of a bad acquisition or a downturn in those sectors — things that may cause investors to lose money. For example, the share price has been weak lately.

Nevertheless, July’s AGM trading statement contains an upbeat outlook statement. So for an ISA, the business looks well worth further research time and consideration now.