For a few years, Greggs (LSE:GRG) shares didn’t provide buyers a lot in the best way of revenue.
Granted, there have been rising payouts and loads of particular dividends because the sausage roll supremo expanded retailer depend, income and (some would say) waistlines. Nice for current shareholders. However a near-500% share worth rise within the decade to August 2024 saved the dividend yield fairly modest for brand spanking new buyers.
Because the summer season of 2024 although, Greggs inventory has crashed 50%! Not nice for current shareholders.
However for brand spanking new buyers, the revenue alternative now seems to be much more enticing.
Picture supply: Getty Photos
First rate dividend yield
After the autumn, the inventory has a 12-month forecast dividend yield of 4.35%. That’s larger than each the FTSE 250 (3.23%) and what Greggs averaged in 2023 (2.38%).
As I kind, the present share worth is 1,594p. This implies it will price slightly below £8,000 to purchase 500 Greggs shares as we speak for an ISA portfolio. If the dividend forecast proves correct, these would pay out £346 in tax-free passive revenue this 12 months (in Might and October).
After all, no dividend’s set in stone. Nevertheless it’s value noting that Greggs’ forecast earnings ought to cowl the payout virtually two occasions over.
Please word that tax therapy is dependent upon the person circumstances of every shopper and could also be topic to vary in future. The content material on this article is supplied for info functions solely. It’s not supposed to be, neither does it represent, any type of tax recommendation. Readers are liable for finishing up their very own due diligence and for acquiring skilled recommendation earlier than making any funding choices.
Why has the inventory tanked?
Greggs has been battered by larger wage prices, rising inflation, weak like-for-like gross sales development, and a few affect from appetite-suppressing weight-loss medication. Oh, and heavy snow in January 2025 and warmth waves over the summer season.
It at all times seems like a little bit of a cop-out when administration blames the climate for tepid gross sales. However within the case of Greggs, it is smart. There have been 4 separate heatwaves in 2025, which general was formally the hottest on report for the UK.
Whereas gross sales of iced coffees and peach teas spiked, they weren’t sufficient to offset the drop in folks getting into Greggs for warm meals. I’ve to confess, a piping-hot Steak Bake isn’t my go-to on a sweltering day.
On account of all this, Greggs expects 2025 and 2026 pre-tax income to stay broadly flat, at round £173m.
It’s not all doom and gloom
Regardless of the robust backdrop, it outperformed the broader market final 12 months. It grew complete gross sales 6.8% because it opened 4 new outlets every week on common. Like-for-like gross sales elevated by a extra modest 2.2%, however the This fall determine (2.9%) was larger than Q3 (1.5%).
Encouragingly, the agency’s nonetheless rising its market share of visits, together with at breakfast and within the night. It’s opening places in additional supermarkets, in addition to promoting frozen meals in them.
Wanting forward, easing inflation ought to assist each the enterprise and shopper confidence. Decrease rates of interest — anticipated to fall to three% by the top of the 12 months — must also be a optimistic transferring ahead.
One other factor value noting is that capital expenditures associated to 2 new distributions centres have peaked. Metropolis analysts anticipate Greggs to develop earnings per share by round 22% by 2028. This places the inventory on a cheap-looking ahead a number of of 10.4.
On 27 December, the bakery chain had 2,739 outlets buying and selling, with 602 of those franchised models. However Greggs is aiming for as many as 3,500 outlets long run.
Pair this development potential with the low valuation and 4.3% dividend yield, and I believe Greggs is value contemplating on the dip.
