I'd describe Medibank Private Ltd (ASX: MPL) shares as one of the most underrated ASX dividend stocks for passive income based on three factors, which I'll get into below.
Medibank Private is one of the largest private health insurers in Australia, with its Medibank Private and ahm brands. It also has a growing (via acquisitions) healthcare division.
It could be a top pick for passive income in the years ahead, generating $200 per month (or more). Let's look at how that could be done.
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Strong and growing dividend
One of the main reasons I think Medibank is an underrated business for dividend income is how consistently it has increased its payout.
In FY26, the business grew its annual dividend per share by 6.7% to 19.2 cents, following a 6.7% rise in the group operating profit to $813.5 million.
At the time of writing, its FY26 grossed-up dividend yield is 6%, including franking credits.
Since it started paying dividends in 2015, the business has increased its payout every year except 2020 due to COVID-related impacts. Therefore, it has increased its payout for six consecutive years, building a solid dividend growth streak.
Further dividend growth is expected in the years ahead.
The projection on CommSec suggests the business could hike its annual dividend by 12% in FY27 to 21.5 cents per share. That would translate into a grossed-up dividend yield of 6.7%, including franking credits.
There are not many S&P/ASX 200 Index (ASX: XJO) shares offering passive income as high as that while also growing the dividend at a good pace.
Rising profits
In my view, the most important element of a growing dividend is that it's funded by rising profits.
Aside from the tailwind of ageing demographics, the company expects several positives in FY27.
It aims to grow its resident policyholder market share in a "disciplined way", including improved volume momentum in the Medibank brand.
On top of that, the non-resident private health insurance gross profit is predicted to see "solid" growth in FY27.
The Medibank healthcare segment is forecast to see segment profit growth of around 25% in FY27, including a full-year contribution from Better Medical.
Finally, the company is open to making further acquisitions to boost its business, and it has the financial capacity to do so.
It's valued at 17 times FY27's estimated earnings.
$200 per month of passive income
The business doesn't pay an annual dividend every month, so it's better to think of the goal as an annual $2,400 target.
The amount of Medibank shares required for the dividend goal depends on whether franking credits are included or excluded. Excluding franking credits, an investor would need 11,163 Medibank shares for the goal. But with franking credits, an investor would only need 6,462 Medibank shares.
I think it's a solid business to consider for passive income, though it's not the only ASX stock that could produce good returns.
