The board of Granite Construction Incorporated (NYSE:GVA) has announced that it will pay a dividend on the 14th of April, with investors receiving US$0.13 per share. Based on this payment, the dividend yield on the company's stock will be 1.6%, which is an attractive boost to shareholder returns.

View our latest analysis for Granite Construction

Granite Construction'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. Even in the absence of profits, Granite Construction is paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Over the next year, EPS might fall by 51.9% based on recent performance. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

Granite Construction Has A Solid Track Record

The company has an extended history of paying stable dividends. The most recent annual payment of US$0.52 is about the same as the first annual payment 10 years ago. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Granite Construction's earnings per share has shrunk at 52% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Granite Construction's payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Granite Construction is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Granite Construction 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.