M&G Credit Income Investment Trust (LON:MGCI) Will Pay A Larger Dividend Than Last Year At £0.0193

The board of M&G Credit Income Investment Trust plc (LON:MGCI) has announced that it will be paying its dividend of £0.0193 on the 25th of August, an increased payment from last year's comparable dividend. This will take the annual payment to 5.9% of the stock price, which is above what most companies in the industry pay.

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

M&G Credit Income Investment Trust Might Find It Hard To Continue The Dividend

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Even in the absence of profits, M&G Credit Income Investment Trust is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Over the next year, EPS might fall by 44.0% 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. The dividend has gone from an annual total of £0.0209 in 2019 to the most recent total annual payment of £0.0535. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. 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.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been sinking by 44% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

We're Not Big Fans Of M&G Credit Income Investment Trust's Dividend

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for M&G Credit Income Investment Trust that investors need to be conscious of moving forward. Is M&G Credit Income Investment Trust not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.