M&G Credit Income Investment Trust plc (LON:MGCI) will increase its dividend on the 26th of May to £0.0177, which is 116% higher than last year's payment from the same period of £0.0082. This will take the dividend yield to an attractive 5.5%, providing a nice boost to shareholder returns.

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 though M&G Credit Income Investment Trust isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. 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. historic-dividend

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

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The dividend has gone from an annual total of £0.0209 in 2019 to the most recent total annual payment of £0.0535. This means that it has been growing its distributions at 26% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Potential Is Shaky

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. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.



M&G Credit Income Investment Trust's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for M&G Credit Income Investment Trust (of which 2 are a bit unpleasant!) you should know about. 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.

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