Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see M&G Credit Income Investment Trust plc (LON:MGCI) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase M&G Credit Income Investment Trust's shares before the 5th of May in order to receive the dividend, which the company will pay 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. Based on the last year's worth of payments, M&G Credit Income Investment Trust stock has a trailing yield of around 4.0% on the current share price of £1.004. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether M&G Credit Income Investment Trust can afford its dividend, and if the dividend could grow.

Check out our latest analysis for M&G Credit Income Investment Trust

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, M&G Credit Income Investment Trust paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

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.

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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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, it's good to see earnings have grown 7.4% on last year.

One year is a very short time frame in the pantheon of investing, so we wouldn't get too hung up on these numbers.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, three years ago, M&G Credit Income Investment Trust has lifted its dividend by approximately 25% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy M&G Credit Income Investment Trust for the upcoming dividend? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 96% of last year's earnings. M&G Credit Income Investment Trust doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of M&G Credit Income Investment Trust don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for M&G Credit Income Investment Trust you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.