Insurance Australia Group vs Medibank: Which is the more reliable passive income stock?

Insurance Australia Group vs Medibank shares: Which is the more reliable passive income stock?

Looking to steady your income with ASX dividend shares? Insurance Australia Group Ltd (ASX: IAG) and Medibank Private Ltd (ASX: MPL) are two prominent insurers – but with different focuses, histories, and fundamentals. If you’re torn between these giants for your portfolio’s next source of passive income, here’s what stands out about IAG and Medibank shares right now.

The case for Insurance Australia Group

Insurance Australia Group is the largest general insurer in Australia and New Zealand, with roots going back to NRMA Insurance. Through well-known consumer brands, IAG offers policies across motor, home, and business insurance, and underwrites billions in premiums each year. It operates in a highly regulated space and is known for scale and brand strength.

Three points make IAG noteworthy for income hunters:

• Dividend yield: 3.8% – solid, though not spectacular, especially among defensive stocks.
• Dividend history: IAG has a long dividend track record, but dividend per share and franking have fluctuated in recent years, with a 0.32 dividend per share and partial franking (recent dividends as low as 25–60% franked).
• YTD return: Up an impressive 9.5%, signalling positive momentum.

That said, IAG’s reported recent earnings per share is negative at -1.921, which does warrant some caution – negative earnings can put future dividend sustainability under pressure.

The case for Medibank Private

Medibank Private is Australia’s largest private health insurer, operating under both Medibank and ahm brands. Its core is health cover, but it’s diversified into pet, life, and travel insurance, plus corporate health. Medibank is often seen as a defensive, reliable dividend share thanks to its stable customer base and highly cash-generative business.

Key features for dividend investors include:

• Dividend yield: 4.1%, just topping IAG and attractive for a major ASX stock.
• Dividend history: Medibank’s dividends have been consistent and are fully franked, giving income investors a tax edge and a sign of strong underlying earnings quality.
• Earnings per share: Positive at 0.232, providing support for ongoing dividends.

While its year-to-date return is only 1.7% (much lower than IAG’s), Medibank’s steady performance and 100% franking may appeal more to income-focused investors.

Valuation comparison

Here’s how the headline numbers stack up:

Note: IAG’s negative EPS seems inconsistent with its positive P/E ratio. This may mean the reported P/E uses an adjusted or forecast earnings number.

Both valuations are within the normal range for major ASX insurers, though Medibank’s P/E is a touch higher – understandable given its 100% dividend franking and consistent profits.

Recent share price momentum

Comparing recent share price performance up to14 October 2026:

• IAG: Closed at $8.30, down 1.43% on the day. Its YTD return, however, is a strong 9.5%.
• Medibank: Closed at $4.66, down 0.43% on the day. Its YTD return is 1.7%.

Both have had small down days but, over 2026, IAG has delivered stronger share price gains.

Which is the better buy?

If reliable, consistent passive income is the goal, I’d lean toward Medibank Private. Its fully franked dividends provide better after-tax returns, and its dividend record is both steady and fully supported by current earnings. Medibank’s 4.1% yield edges out IAG, and the consistency of 100% franking is a major plus for Australian tax residents, especially with partial franking now the norm for IAG.

IAG has delivered better share price growth this year, but its negative earnings and lower franking raise some questions on dividend sustainability. While its insurance business is huge and diversified, I think income investors want clarity and reliability.

So, for pure passive income reliability, my pick would be Medibank Private shares.

The post Insurance Australia Group vs Medibank: Which is the more reliable passive income stock? appeared first on The Motley Fool Australia.

More reading

• 9 ASX 200 shares experts are backing for growth amid market weakness
• How much passive income can I earn off a $700,000 superannuation balance?
• Insurance Australia Group updates on RAC alliance and ACCC review
• Here are the top 10 ASX 200 shares today
• UBS’ top nine ASX large-cap stock picks

Motley Fool contributor Laura Stewart has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. This article was prepared with the assistance of Large Language Model (LLM) tools for the initial draft. Any content assisted by AI is subject to our robust human-in-the-loop quality control framework, involving thorough review, substantial editing, and fact-checking by our experienced writers and editors holding appropriate credentials. The Motley Fool Australia stands behind the work of our editorial team and takes ultimate responsibility for the content published by The Motley Fool Australia.