Getting passive income going from the stock market in 2026 is pretty straightforward. Due to the digital revolution, you can open and fund an investing account on a smartphone in no time at all.
However, building a sizeable passive income stream is likely going to take time and patience, as well as a grasp of investing basics. The good news is that this goal is entirely possible.
Let’s take each one of those things in turn — time, patience, and investing basics.
How long to get to £37k?
Let’s assume someone has £10k in a Stocks and Shares ISA, and that they can afford to invest a further £250 a month.
Let’s make another assumption: this person manages a long-term average annual return of 8.5% (with dividends reinvested), which is roughly in line with the UK market average over the past decade.
Here’s how this person’s portfolio could grow over time (excluding platform fees and stock stamp duty):
- 10 years: £70,361
- 20 years: £211,162
- 30 years: £539,601
But we now require a third assumption (last one, I promise!). That’s a portfolio dividend yield of 7%.
Admittedly, this is well above the market average of about 3.2%. But there are a few UK stocks that yield 7%+, while some holdings would ideally raise their dividends over time, resulting in a higher portfolio yield (though this isn’t nailed on).
The end result is that a 7%-yielding ISA worth £538k would throw off roughly £37,700 in tax-free dividends. And that could be the point to finally start enjoying passive income.
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.
Patience
Of course, this scenario would require someone to patiently reinvest dividends for three decades. Not everyone has the temperament to do that.
Being patient would also mean enduring the inevitable ups and downs of the stock market. This can be frustrating, especially when your portfolio is a sea of red day after day during meltdowns.
From my experience, resilience is a necessary trait.
Investing 101
Learning the basics is also necessary for stock-picking. These include things like valuation considerations, assessing the balance sheet, and working out a company’s competitive advantage (or ‘moat’).
Take Hollywood Bowl (LSE:BOWL), for example. Does it have a durable moat? I think so, as this is the largest ten-pin bowling operator in the UK. Therefore, it has a market-leading position and a strong brand.
What’s more, bowling alleys require massive, open-plan floor spaces. Not many firms have the capital for this, while Hollywood Bowl’s scale and reliability as a long-term tenant gets it prime locations like retail parks.
What’s the balance sheet like? At the end of March, the FTSE 250 company had a net cash position of £26m, alongside an undrawn £25m revolving credit facility.
This robust balance sheet will support plans to have 130 bowling centres operating in the UK and Canada by 2035 (up from 93 today).
Finally, the stock is trading at just 10.5 times forward earnings, so it appears to offer great value. However, this cheapness is due to the stock falling 29% in a year due to inflation fears.
This could be the fly in the ointment moving forward, especially if more people start tightening belts.
On balance though, I think Hollywood Bowl is worth considering, especially while it’s offering a generous 5.5% dividend yield.
