FTSE 100 funding supervisor M&G (LSE: MNG) stays one in every of my top-performing passive revenue shares.

These are shares chosen for his or her potential to generate very excessive annual dividends with out a lot effort on my half.

If these returns are invested again into the inventory that paid them — ‘dividend compounding’ – the yearly revenue may be extraordinarily excessive.

I intention to more and more reside off this revenue while decreasing my weekly working commitments.

Key qualities in my passive revenue shares

The place to begin in my preliminary passive revenue share screening course of is an annual yield above 7%.

This determine compensates me for the additional threat concerned with investing in shares quite than the ‘risk-free rate’ of UK 10-year authorities bonds. The present yield on these bonds is 4.5%.

The second factor I need is an undervalued share price. I not often promote my passive revenue shares, however I don’t need to take a loss if I do.

An undervalued share price reduces the prospect of this occurring, in my expertise. Conversely, it will increase the prospect of my making a share price revenue on this occasion.

Underlying each is the third high quality I search for in my passive revenue holdings – earnings progress potential. It’s finally this that drives a agency’s share price and dividend larger over time.

How does this inventory charge on these standards?

M&G has one of many highest yields of any inventory in any FTSE index – at present, 9.5%. That is far more than double the typical FTSE 100 yield of three.5% and almost triple the FTSE 250’s 3.3%

Furthermore, analysts forecast that the agency’s dividend will improve from 19.7p to twenty.7p in 2025, 21.3p in 2026, and 22.9p in 2027. These would generate respective yields of 9.5%, 10% and 11%.

The agency additionally appears to be like extraordinarily undervalued to me. Extra particularly, utilizing different analysts’ numbers and my very own, a reduced money stream analysis reveals the shares are 54% undervalued proper now.

This implies their truthful worth is theoretically £4.52. A threat to it is a resurgence in the price of dwelling which will trigger prospects to cancel their insurance policies.

Nevertheless – and my ultimate funding criterion happy – analysts forecast its earnings will develop 26.7% yearly to end-2027.

How a lot passive revenue can it generate?

Traders contemplating a stake of £11,000 (the typical UK financial savings) in M&G would make £1,045 in first-year dividends.

On the identical common yield, this is able to rise to £10,450 after 10 years and £31,350 after 30 years.

Nevertheless, utilizing the aforementioned dividend compounding course of would enormously increase these numbers.

Doing this on the identical 9.5% common yield would generate £17,337 in dividends after 10 years, not £10,450. And after 30 years on the identical foundation, this is able to improve to £177,043 quite than £31,350.

With the preliminary £11,000 included, the M&G holding could be price £188,043. This is able to be paying £17,864 in yearly passive revenue by then.

Given the share price undervaluation in my opinion, the large yield, and the excessive earnings forecasts I can be shopping for extra M&G shares very quickly.