Have you ever dreamed of earning passive income and watching the pounds come on without having to work for them? Many people have the same idea – and many are making it a reality by filling their Stocks and Shares ISA with blue chip shares that pay dividends.

This can be a lucrative approach to making money without you have to work for it.

Setting a goal that suits your circumstances

The amount you can earn with this approach depends on a few key variables – how much is invested in the ISA and the dividend rate.

Average 1 thousand pounds per month requires a dividend of PLN 12,000. pounds a year or more. With a dividend rate of 10%, this would require an ISA worth PLN 120,000. pounds. At a rate of return of 5% the ISA would need to be £240,000. pounds. Five percent is well above that FTSE100 give.

Still, while I think 10% is excessive, I think a 7% target return is realistic in today’s market while sticking to proven, blue-chip companies.

This would require you to have a stocks and shares ISA worth just under £172,000. pounds.

However, you can start from scratch and gradually work your way up to it. How quickly depends on what the individual investor has at his disposal.

This approach allows the investor to cut the fabric according to his own possibilities. A higher or lower target rate of return would require a smaller or larger ISA respectively.

Saving regularly in an ISA

Doing so within an annual allowance ISA could also allow an investor to keep passive income streams within the ISA tax wrapper.

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

The first move would be to choose the best Stocks and Shares ISA for them. They could then make regular donations depending on what suits their situation.

By investing the dividends first (called compounding) rather than withdrawing them as passive income, an investor could aim to reach their target ISA size more quickly.

For example, if someone invested £500 a month in a Stocks and Shares ISA and compounded it at 7% per annum, after 16 years they would have already reached their target size.

At a dividend yield of 7% the ISA would then generate a dividend worth over £1,000 per month.

Not all dividends are created equal

I think a yield of 7% is achievable, but not guaranteed. This is because the company can cut its dividend at any time.

Diversifying your ISA across a range of stocks can facilitate manage the risk of a dividend cut. Of course, careful stock selection also helps.

One massive dividend payer that I think investors should consider for their stocks and shares ISA British-American tobacco (LSE: BATS).

Cigarettes are low-cost to produce. But they come at a premium – as do the stable of premium British brands Dunhill facilitate in this regard.

This uncomplicated yet powerful model generates huge amounts of cash. British American has raised its dividend per share every year for decades. The stock currently yields 5.5%.

Cigarette consumption is dwindling in many markets. This poses a risk to both the tobacco company’s revenues and profits. However, its pricing strength helps it mitigate the impact of dwindling sales volumes. The company’s development area also includes formats other than cigarettes, such as nicotine pouches.