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M&G’s (LSE: MNG) 6.8% dividend yield already looks tempting for passive income investors like me. This is regular income from an investment with little ongoing effort from the holder.
However, with earnings forecast to grow strongly through 2028, that payout could rise sharply. And with the shares trading what I think is significantly below ‘fair value’, there could be major capital gains too.
So, is this one of the most compelling passive income opportunities in the FTSE 100 now?
Three key qualities I look for
One feature I want in a passive income stock is a much higher dividend yield than the ‘risk-free rate’ (the 10-year UK government bond return). This compensates me for taking the additional risk in investing in stocks over taking no risk at all. The current 10-year yield is 4.5%.
Second, I want to see a major undervaluation in the share price to its discounted cash flow (DCF) valuation. The larger the discount to fair value, the more chance I make a profit if I need to sell the stock.
The DCF for M&G shows its shares are 49% undervalued at their current £2.97 price. Therefore, their fair value could be £5.82. These numbers are based on projected earnings growth and my own calculations, with other DCF figures being more conservative.
And the third feature is strong forecast earnings growth. It is ultimately this that drives any company’s dividends and share price higher.
A risk for M&G’s is the intense competition in its sector, which could pressure margins. Even so, analysts forecast its earnings will rise an impressive 27.2% a year to end-2028.
Are the forecasts supported by results?
M&G saw its H1 2025 new flows swing to a £2.1bn inflow from a £1.1bn outflow in H1 2024. This was underpinned by a rise in assets under management to £354.6bn from £346.1bn.
As M&G’s Asset Management business expanded, it also trimmed its cost-to-income ratio to 75% from 77%. This helped to lift adjusted operating profit before tax (PBT) to £378m.
Its 2024 results, published on 19 March 2025, reinforced this momentum. Adjusted operating PBT jumped 5% year on year to £837m, supported by a 19% increase from its Asset Management division.
Rising dividends in sight
All this underpins why analysts are now forecasting a clear upward trend in M&G’s dividend yield. However, this can move frequently — up or down — in line with fluctuations in share price and annual payouts.
Nonetheless, projections point to dividends of 21.3p this year, 22p next year, and 23.5p in 2028. These would generate respective dividend yields of 7.2%, 7.4%, and 7.9%.
Using the current (lower) 7.2% dividend yield, my £20,000 holding in M&G would potentially generate £21,000 in dividends after 10 years if that level stayed the same (which it might not). This also assumes the dividends are reinvested back into the stock (‘dividend compounding’).
On the same basis, the dividends would rise to £152,307 after 30 years.Including my original stake, the holding would then be worth £172,307.
And at that point it would be paying me £12,406 in annual passive income from dividends!
Given this — combined with its deep undervaluation and strong earnings growth forecasts — I think M&G rates as one of the most compelling passive income opportunities in the FTSE 100.
I intend to buy more shortly.
