Stock Analysis

Do These 3 Checks Before Buying M&G Credit Income Investment Trust plc (LON:MGCI) For Its Upcoming Dividend

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Readers hoping to buy M&G Credit Income Investment Trust plc (LON:MGCI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, M&G Credit Income Investment Trust investors that purchase the stock on or after the 5th of May will not receive the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be UK£0.0082 per share, on the back of last year when the company paid a total of UK£0.04 to shareholders. Calculating the last year's worth of payments shows that M&G Credit Income Investment Trust has a trailing yield of 4.0% on the current share price of £1.004. If you buy this business for its dividend, you should have an idea of whether M&G Credit Income Investment Trust's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for M&G Credit Income Investment Trust

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. M&G Credit Income Investment Trust paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit M&G Credit Income Investment Trust paid out over the last 12 months.

LSE:MGCI Historic Dividend April 30th 2022

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, it's good to see earnings have grown 7.4% on last year.

We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. M&G Credit Income Investment Trust has delivered an average of 25% per year annual increase in its dividend, based on the past three years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is M&G Credit Income Investment Trust worth buying for its dividend? M&G Credit Income Investment Trust has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that being said, if you're still considering M&G Credit Income Investment Trust as an investment, you'll find it beneficial to know what risks this stock is facing. In terms of investment risks, we've identified 1 warning sign with M&G Credit Income Investment Trust and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether M&G Credit Income Investment Trust is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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