Is this FTSE 100 passive income gem’s share price set to soar after huge new partnership deal?

FTSE 100 monetary providers supplier M&G (LSE: MNG) stays a core holding in my passive revenue portfolio.

This contains shares that ship a dividend yield of seven%+, which ought to enable me to maintain decreasing my working commitments. Higher nonetheless, they accomplish that with out an excessive amount of effort on my half past choosing them initially – therefore the ‘passive’ tag.

One other one of many choice standards I exploit to decide on these shares is that they need to be considerably undervalued. That is primarily aimed toward decreasing the prospect of my making a loss on the share value. But it surely additionally will increase the prospect of my making a revenue on the share value too.

The main new deal

M&G’s share value was already considerably undervalued in keeping with discounted money circulate (DCF) modelling once I purchased the inventory. This technique exhibits the place any agency’s inventory value ought to be, derived from money circulate projections for the enterprise.

Because it stands now, the DCF for the agency exhibits it’s 46% undervalued at its current value of £2.59.

Subsequently, its ‘honest worth’ is £4.80, implying that the shares may have loads of room to rise.

I imagine a catalyst which will allow its present value to converge with its honest worth is a brand new deal.

Particularly, 30 Might noticed Japanese monetary powerhouse Dai-ichi Life agree to purchase a 15% shareholding in M&G. The UK agency expects the partnership to ship not less than $6bn of recent enterprise flows for it over the following 5 years.

That is anticipated to return from a fast enlargement in European non-public markets and from new prospects throughout Asia.

A threat to the agency is that this partnership falters for some cause.

That stated, consensus analysts’ forecasts are that M&G’s earnings will enhance a spectacular 41.2% a yr to end-2027. And it’s development right here that in the end pushes any agency’s share value – and dividends – increased over time.

What concerning the dividend yield?

In 2024, M&G paid a dividend of 20.6p, which yields 7.8% on the present share value.

Nonetheless, analysts forecast that its dividends will enhance to twenty.6p this yr, 21.3p subsequent yr, and 22.1p in 2027.

On the present share value, these would generate respective yields of 8%, 8.2%, and eight.5%. In contrast, the typical FTSE 100 yield is 3.5%. And the risk-free price (the UK 10-year authorities bond yield) is 4.6%.

How a lot passive revenue could possibly be made?

Simply utilizing the present decrease yield, traders contemplating a £10,000 holding in M&G would make £780 this yr in dividends. Over 10 years on the identical common price this is able to rise to £7,800, and to £23,400 after 30 years.

That stated, through the use of the usual funding follow of ‘dividend compounding’ the returns could be far higher.

Particularly, on the identical 7.8% common yield, the dividends could be £11,760, not £7,800. And after 30 years on the identical foundation they might be £93,029, slightly than £23,400.

Including within the preliminary £10,000 stake and the full worth of the holding could be £103,029 by then. At that time this is able to be producing £8,036 a yr in annual passive revenue from dividends.

None of that is assured, after all. However given its earnings development potential and what this implies for the share value and dividends I’ll purchase extra of the shares very quickly.