Medibank Private Ltd (ASX: MPL) stock may not receive a lot of investor attention for passive income, but today I'm going to outline why it looks like a solid and compelling choice.
The business is Australia's largest private health insurer with its Medibank and AHM brands. It also has a growing portfolio of bolt-on healthcare businesses.
Healthcare is one of those categories that has typically defensive earnings – I'd imagine plenty of policyholders would want to hold onto their insurance even if Australia's GDP was slightly declining rather than rising in a particular year.
With resilient earnings, the business can provide a consistently-growing dividend.
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Is the dividend yield attractive?
Since it listed a decade ago, the business has increased its annual dividend per share every aside from the COVID-impacted year of 2020.
In FY25 it decided to hike the annual dividend per share by 8.4% to 18 cents. That translates into a trailing grossed-up dividend yield of 5.5% (which includes the franking credits).
But, last year's dividends are history. Let's take a look at how large analysts think the next payments could be.
The forecast on CMC Markets suggests the business could decide to hike its annual dividend per share to 19 cents per share, which would represent a year-over-year hike of 5.5%.
If owners of Medibank stock do receive that projected payout, it would represent a grossed-up dividend yield of 5.8% (which includes franking credits).
The projection on CMC Markets is another hike in FY27 to 20 cents per share.
Is this a good time to buy Medibank stock?
The company is working hard to diversify its earnings streams. It recently announced its FY30 aspirations for its Medibank health segment, with a goal to deliver segment earnings of at least $200 million by FY30.
Medibank also wants to grow its policyholder market share each year in a disciplined way to at least 26.8% by FY30.
The ASX healthcare share is regularly achieving growth in both Australian policyholders and international policyholders. In FY25, Medibank grew net resident policyholders by 27,900 (or 1.4%) and increased net non-resident policy units by 10,500 (or 3.1%).
That's exactly the numbers I want to see – I think policyholder growth is the key for ongoing success as it boosts both revenue and operating leverage for the business.
According to CMC Markets, of the five analyst ratings it has information on, the average price target of $5.22. That implies a possible rise of more than 10% over the next year from where it is at the time of writing.
A double-digit rise of the Medibank share price combined with the dividend return would be a very pleasing result over the next 12 months, if those forecasts come true.
