Passive income plans come in all shapes and sizes. An ancient but potentially very profitable way is to buy shares in the hope that they will pay a dividend.

This approach can have both advantages and disadvantages. Here are a few of each.

Advantage: It’s a truly passive approach to income

Some so-called passive income plans don’t seem passive to me in practice. For example, they may cover all the initial stages of setting up a business, even if it is supposedly run successfully in the future.

However, you can buy shares and then sit back and earn the dividends. This is what I consider truly passive.

Disadvantage: Dividends are not guaranteed

If you put money into a Cash ISA, steady passive income is almost guaranteed. I say almost because there may be exceptional circumstances, such as the bank robbery that occurred at Northern Rock less than 20 years ago.

Even then, however, depositors are usually automatically insured up to a certain level, so even though the promised profits may not be realized, their capital should be safe and sound within this limit.

Dividends, however, can and often do change. Some go up, some go down, and some disappear completely, temporarily or permanently.

A properly diversified portfolio of dividend stocks can assist reduce the potential impact of this risk on passive income streams, but it remains a risk.

Professional: Share in the potential profits of a prospering business

However, to put this comparison into perspective, fixed-interest investments typically provide the maximum possible return.

Compare this to sharing M&G (LSE:MNG). This share has a yield of 6.8%, which means someone who invests £100 today will be hoping to earn £6.80 in passive income each year.

In fact, they could earn more because, for example, FTSE100 the asset manager aims to enhance dividends per share every year and has done so over the last few years (though of course this is never guaranteed).

Moreover, the share price has increased by 38% over the last five years.

So £100 invested in May 2021 will now be worth up to £138 before including passive income from dividends.

Owning shares in a successful company can therefore potentially assist someone earn passive income as well as capital gains.

M&G has a multi-million client base, international reach and deep asset management experience which I believe will assist it.

Disadvantage: money is at risk

However, there is another side. Like any company, M&G is exposed to risk. For example, the current stock market turmoil may cause customers to withdraw money from company funds. If this happens, earnings could fall – and that could be bad news for the dividend.

As I explained above, money in the bank is usually protected by some industry-backed guarantees, such as the Financial Services Compensation Scheme. Dividend stocks offer a different risk profile. Not only is the dividend not guaranteed, but shares carry the risk of capital loss. On the other hand, as I have shown in the case of M&G, they carry capital potential achieve.

In fact, I view M&G as a dividend stock that investors should consider now.