M&G Credit Income Investment Trust (LON:MGCI) Has Announced That It Will Be Increasing Its Dividend To £0.0177

M&G Credit Income Investment Trust plc (LON:MGCI) has announced that it will be increasing its periodic dividend on the 26th of May to £0.0177, which will be 116% higher than last year's comparable payment amount of £0.0082. This takes the dividend yield to 5.5%, which shareholders will be pleased with.

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

M&G Credit Income Investment Trust's Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. M&G Credit Income Investment Trust is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Over the next year, EPS might fall by 17.7% based on recent performance. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

M&G Credit Income Investment Trust's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2019, the dividend has gone from £0.0209 total annually to £0.0535. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. M&G Credit Income Investment Trust has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past three years, it looks as though M&G Credit Income Investment Trust's EPS has declined at around 18% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think M&G Credit Income Investment Trust will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for M&G Credit Income Investment Trust (2 are potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.