Putting together a portfolio of dividend stocks within a Stocks and Shares ISA is a proven way to generate passive income. Today, there are thousands of Britons who have tax-free second income streams thanks to this investment strategy.

Want to see how a £20,000 ISA could generate a ton of income? Here’s a simple example.

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.

Building a passive income portfolio

I’ve listed five high-yield stocks from the UK’s FTSE 350 index and their dividend yields. They come from a range of sectors – two financial services companies, two REITs, and a consumer goods business.

• Primary Health Properties – 7.8%.
• Supermarket Income REIT (LSE: SUPR) – 7.5%.
• Aviva – 6.7%.
• Domino’s Pizza – 5.5%.
• M&G – 7.3%.

Now, the average forward-looking dividend yield of those stocks is about 7%. That means if an investor was to split £20,000 across those five names, they could be in line to pocket income of around £1,400.

What’s the catch?

It’s worth pointing out dividends are never guaranteed. And the yield figures I’ve used above are based on forecasts (which aren’t always accurate). It’s also worth mentioning that every stock has risks. So investing money in just five stocks isn’t very sensible.

But the calculation shows what’s possible with an ISA and a selection of dividend stocks. It really isn’t hard to build a decent second income.

Is this 7.5% yield worth a look?

Now, I think all of the stocks above are worth a look today. I haven’t selected them randomly. One I feel is particularly worth highlighting is Supermarket Income REIT. It’s a commercial property company that’s focused on grocery store real estate across the UK and Europe and counts the likes of Tesco, Sainsbury’s, Asda, and Aldi among its tenants.

Looking beyond the attractive yield here, there are quite a few things to like about this stock. For a start, it’s defensive in nature. No matter what happens in the economy in the years ahead, supermarkets are likely to continue operating. When times are tough, people can cut out a lot of discretionary expenses but they can’t cut out food.

Supermarkets also look immune to AI disruption. That’s another plus from an investment perspective. Additionally, the company has blue-chip tenants. These companies are unlikely to suddenly stop paying rent.

Finally, it has a 100% occupancy, an average unexpired lease term of 12 years, and a large proportion of its income is inflation linked. So operationally, it looks pretty robust.

That said, there are risks here. One is debt – at the end of December the company had net debt of £925m. Servicing this debt could put pressure on earnings, especially if interest rates remain high. This, in turn, could impact dividends.

Overall though, I see a lot of appeal in this name from a dividend investing/passive income perspective. I believe it’s worth a closer look.