Millions of UK investors are exploring whether dividend income from a Stocks and Shares ISA can genuinely replace a salary in retirement.
The goal of earning half the UK’s median annual salary purely from dividends is more achievable than many people assume, with the right strategy.
Half the average UK salary currently equates to around £16,455 per year, or approximately £1,370 per month in passive income.
The FTSE 100 currently yields around 3.1% as a whole, but 13 of its constituents are presently paying dividends of 5% or more, with eight returning at least 6%.
At a portfolio yield of 5%, an ISA worth £329,100 would be required to generate the £16,455 annual income target without touching the underlying capital.
If that yield rises to 6%, the required ISA size falls to £274,250, making the target more accessible for long-term savers who invest consistently.
Over the 20 years to April, the FTSE 100 delivered an average annual return of 6.4%, assuming dividends were reinvested to purchase additional shares throughout the period.
An investor putting in £5,000 per year at a 6.4% growth rate would accumulate an ISA worth £308,863 after 25 years, enough to generate the target income at a yield of 5.3%.
There are currently 127 stocks on the FTSE All-Share index offering yields of 5.3% or above, meaning investors have a wide pool of options beyond the FTSE 100 alone.
One stock worth highlighting in this context is Supermarket Income REIT (LSE: SUPR), which owns a £2.1bn portfolio of large grocery stores across the UK and France.
The properties are let to blue-chip tenants on long-term leases, providing the kind of stable, recurring rental income that supports consistent dividend payments for shareholders.
Supermarket Income REIT currently offers a yield of 7.5%, meaning a holding of £308,863 in its shares would produce annual dividends of approximately £23,165.
Since listing in July 2017, the company has grown its dividend every single year, rising from 5.50p per share in FY18 to a current target of 6.18p for FY26.
The company has never recorded a bad debt and currently maintains a 100% occupancy rate across its portfolio, which reflects the resilience of grocery retail as a sector.
Risks do exist, however, as the company carried £980m of borrowings as of 31 March, meaning prolonged higher interest rates could put pressure on profitability.
Any difficulty leasing one or more properties could also threaten earnings and, in turn, the reliability of future dividend payments to investors.
Despite these risks, grocery stores remain a structurally important part of the retail landscape, whether customers shop in-store or rely on online fulfilment from large supermarket sites.
Building a diversified portfolio of high-yield dividend shares, including holdings like Supermarket Income REIT, represents a credible path toward achieving meaningful passive income through an ISA over time.