£8,000 in savings? This is how I would aim for £2,300 a month in passive income.

Dividends are the highest form of passive income. This is because other than researching the company you want to invest in and monitoring its performance, there is very little you need to do.

If you trust the company’s management, you won’t have to make any decisions. You can just sit back, relax and receive your profits in the form of dividends.

However, the dividend yield is not exactly high. Average footsie The company pays out 3.6% annually on the value of its shares.

So unless you have a very large amount of money to begin with, its contribution to your monthly income will likely be minimal.

Long-term passive income strategy

Even though they may be a trivial source of income for you today, you may want to consider developing a strategy that will make them a significant source of income in the coming years.

Firstly, you may want to consider setting up a stocks and shares ISA. This allows you to invest up to £20,000 a year in shares without capital gains tax being charged on realized profits. This is a tax-efficient way to invest in stocks.

Please note that tax treatment depends on each client’s individual circumstances and may be subject to change in the future. The contents of this article are provided for informational purposes only. It is not intended to and does not constitute any form of tax advice. Readers are responsible for conducting their own due diligence and seeking professional advice before making any investment decisions.

Then it’s time to choose stocks to invest in. An excellent passive income portfolio uses growth stocks and dividends. This is because growth stocks will hopefully rise in value faster, adding value to the portfolio, while dividend stocks provide income.

It is important to note that neither dividends nor share price growth are guaranteed. However, a well-diversified portfolio with a good mix of these stocks can grow 5% annually (on average) and provide a dividend yield of 5%.

If I invested £8,000 in such a portfolio and reinvested my dividends, as well as contributing an extra £200 at the start of each month, after 30 years I could have £555,453.76 left over.

Applying my 5% yield to this, I would receive £27,772.69 per year in dividends, which is £2,314.39 per month.

One promotion I like

British American Tobacco (LSE:BATS) is one UK share that could be considered for inclusion in this portfolio.

The company’s shares had a strong 2024, rising 13%. Moreover, they currently have a dividend yield of 8.9%.

There are some serious concerns about its business model. For example, the number of smokers is declining, making it difficult to predict the long-term future of tobacco products.

However, smoking remains a huge market. We see this as the company still managed to grow annualized diluted earnings per share in the first half of 2024 by 13.8%. The tobacco industry will eventually disappear, but we are still decades away from that happening. Therefore, there is still an opportunity to make money from this.

Meanwhile, British American Tobacco is preparing for the transition to a smoke-free world, with smoke-free products currently accounting for 17.9% of the company’s revenue. For example, the number of modern oral pouches sold increased by 50%.

Finally, its shares are trading at a very cheap price, with a forward price-to-earnings (P/E) ratio of just 7.4. So if I had some spare money, now would be the time to take it.