Medibank Private Ltd (ASX: MPL) shares could be one of the most underrated options for passive income on the ASX because of its dividend yield, in my view.
Medibank is the largest private health insurer in Australia, through two brands – Medibank and ahm.
For a variety of reasons, I believe Medibank may be one of the most underrated ASX dividend shares within the S&P/ASX 200 Index (ASX: XJO).
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Regular dividend growth
I think one of the most important factors when it comes to passive income is consistency.
If I'm investing in something primarily for the passive income, then I want to have a high level of certainty that the dividends will continue flowing in all economic conditions, including when times become leaner.
There's no guarantee of dividend payments, of course – they are not term deposits or annuities.
But I think some businesses are more likely to deliver regular payouts than others. Firstly, some businesses may already have a long dividend growth record they want to continue. Second, specific ASX shares operate in sectors that provide more predictable, defensive earnings. Healthcare is fairly defensive.
Medibank has increased its dividend every financial year (except for FY20) since its listing in FY15. It has a good track record of regularly increasing the payout.
In FY26, the business decided to hike its annual dividend per share by 6.7% to 19.2 cents. Earnings per share (EPS) jumped 27.5% to 23.2 cents, while underlying EPS grew 2.9% to 23.1 cents.
Good dividend yield
If Medibank continues to increase its payout each year, the dividend yield for long-term shareholders could keep improving.
The company's 6.7% increase in the dividend was pleasing, considering the dividend yield was already at a pleasing level.
At the time of writing, and based on the current Medibank share price, the business has a FY26 grossed-up dividend yield of 6%, including franking credits. I expect the annual payout will grow in FY27.
Good outlook for growth in FY27
The ASX dividend share has provided outlook commentary suggesting further earnings improvement in the 2027 financial year.
Medibank said it aims to grow its resident policyholder market share in a disciplined way, including improved momentum for the Medibank brand. It also expects the FY27 resident private health insurance gross margin to be broadly consistent with FY27.
Non-resident private health insurance gross profit is expected to deliver solid growth in FY27.
With the compelling Medibank health division, segment profit growth is expected to be approximately 25% in FY27, partly due to a full-year contribution from Better Medical.
The ASX dividend share also expects to pursue further acquisition opportunities, which could help grow and diversify the overall business.
Overall, I think Medibank shares and its dividend yield are a compelling investment that I'd be happy to own for the long term.
