Would you like to make a four-figure passive income from your stocks and shares ISA next year?

Such an idea definitely catches my attention. I also think it could be a realistic target even for a stocks and shares ISA that only has a one year contribution allowance (£20k).

In fact, a four-figure income could be possible on such a sum with a 5% dividend yield – 5% of £20,000 is really £1,000, after all.

But I think an investor could realistically target a higher return of 7%. This should result in a passive income of £1,400 per year in dividends.

Where do you fish?

It’s important when buying dividend stocks to not only look at the current yield. After all, there is no guarantee of profits. It can go up, down, or be canceled altogether.

So an investor must look at a business and consider how likely it is to pay a certain level of dividend in the future.

the FTSE 100 index It offers a number of stocks that yield 7% or more, e.g M&G (LSE: MNG), Phoenix group and Legal and general.

but FTSE 250 index The index also has a fair number of returns of 7%+. Furthermore, there are other stocks in the market that are not large enough to be in either index but are yielding more than 7%. For example, Gresham House Income and Growth Venture Capital Fund The yield is currently 8.4%.

Therefore, while an investor needs to consider the quality of a business and the sustainability of its earnings, he can make his research easier by not limiting himself to the FTSE 100 alone.

Spread money across multiple stocks

As part of this process, some stocks may appear more attractive than others.

Many of us may have our favorites. But one mistake when investing is to get carried away in one stock instead of diversifying. Even the best-managed companies can encounter difficulties that may not be expected.

£20,000 is enough to spread a stocks and shares ISA over a few different stocks. This seems to me to be a smart thing to do when it comes to risk management.

One share to consider

One dividend stock I think investors should consider right now is the aforementioned M&G.

The asset manager aims to increase its earnings per share every year. This sounds attractive to me, especially since the dividend yield is already 7.3%.

The company benefits from operating in a market that is huge and also likely to have long-term customer demand. But this also poses a challenge: there are plenty of other asset managers keen to eat into M&G’s multi-million strong client base.

If the company can deliver good results and keep policyholders happy, that could be a good thing. But I see the risk of clients withdrawing more from its funds than they invest, hurting fee income.

This has been a challenge for M&G in recent years. However, the first half of this year saw a net inflow of client funds. Continuing this trend could be good news for the company.