Passive income is one of the simplest financial ideas to grasp — making money with minimal effort. Yet it remains one of the hardest for investors to execute consistently well, in my view.

The key for passive income made from shares is not chasing the highest yield. It is understanding which companies generate the steady, recurring cash that can support those payouts.

And that is where the market often gets things wrong, especially with businesses that look far riskier on the surface than they really are.

How solid’s the underlying business?

One FTSE company that suffers from this kind of misunderstanding is M&G (LSE: MNG). At first glance, it looks like a traditional fund manager exposed to market swings, fee pressure, and unpredictable client flows.

But that impression is misleading. M&G is a hybrid business with several different engines of cash generation, many far more stable than investors assume.

The group combines a capital‑light asset‑management arm with capital‑heavy life‑insurance and annuity operations. These are all supported by a large balance sheet generating recurring investment income.

This mix gives the company multiple and independent sources of cash flow — fee income, insurance profits, and surplus capital generation. And it is this hybrid structure, rather than any single line of business, that makes M&G capable of supporting a high, sustained level of passive income.

How are these factors working now?

All these factors can be seen at play in M&G’s 2025 annual numbers released on 12 March. Net flows from open business swung to a £7.8bn inflow from a £1.9bn outflow the year before. The turnaround highlights the strength of both the asset‑management and life businesses in attracting new money.

Adjusted operating profit remained stable at £838m, illustrating how M&G’s diversified mix of fee income, insurance profits and investment returns helps smooth volatility.

A risk for M&G is sustained bearishness in financial markets that could pressure assets under management and fee income. Another is any tightening of regulatory capital requirements, which could hamper its ability to deploy capital freely in volatile conditions.

Nonetheless, analysts forecast its earnings will grow by a whopping annual average of 31.2% to end-2028. And it is growth here that powers any company’s dividends over the long run.

How much passive income can be made?

Analysts forecast M&G’s dividend yields increasing to 7.1% this year, 7.3% next year, and 7.6% in 2028.

So, a £20,000 holding in M&G (the same as mine) would make £22,663 in dividends after 10 years and £174,133 after 30 years. The numbers assume the forecast 7.6% yield as an average, although this can go down as well as up. They also assume the dividends are reinvested back into the stock to harness the turbocharging effect of ‘dividend compounding’.

At the end of that time, the holding could be worth £194,133. And this would pay a yearly passive income of £14,754!

My investment view

M&G’s hybrid model gives it multiple levers to support and grow its dividend, even when markets are unsettled.

For investors seeking long‑term passive income, that combination of stability, yield and compounding potential is hard to ignore.

And I for one will be adding to my holding in the stock as soon as possible. I also have my eye on other high-yielding stocks in other sectors.