How many Greggs shares does someone need to earn a £1,000 monthly passive income?
From a passive income perspective, Greggs‘ (LSE:GRG) shares look interesting. But for the first time since 2019, the firm didnât increase its annual dividend.
The company’s been under pressure recently and the stock’s fallen by more than 50% from its highs. But the business hasnât stopped growing.
Dividends
For the last couple of years, Greggs has returned dividends of 69p per share. That means investors need 17,391 of them to earn £1,000 a month. At todayâs prices, that costs £269,109. Thatâs obviously a lot, but there are a few things investors should note about that amount.
One is that itâs a lot lower than it used to be. Five years ago, that many Greggs shares cost £399,819 and the dividend was much lower. That means the stock’s better value now than it was then. The firm’s returning more cash to investors, yet the shares are trading at a lower price.
This is the result of investors previously overestimating the companyâs prospects. But is the current share price an overreaction?
Growth
Greggs has two main avenues for generating growth. The first is opening more shops and the second is selling more from its existing ones.
In terms of the first, Greggs is targeting somewhere in excess of 3,000 UK stores. But thatâs only about 10% above the current level. That leaves like-for-like sales as the main growth opportunity. Unfortunately, this has fallen from 17.8% to 2.4% since 2022.
On top of this, inflation has been weighing on margins during this time. And this has given investors plenty to be concerned about. Thatâs why the share price has fallen. But the dividend yield is now 4.5% and the companyâs key strength remains firmly intact.
Value
I think the firmâs biggest asset is its reputation for value. UK consumers know itâs not worth looking for lower prices elsewhere â theyâre not going to find them.
In my view, thatâs one of the best strengths a company can have. The appeal of low prices is something that doesnât really go away over time. Not every business can do this. It only works for companies that have lower costs than competitors â which Greggs does.
The firmâs scale allows it to buy ingredients and make products for less than its rivals. This means it can sell products for less while making more money. Thatâs useful in any situation, but it makes the company especially resilient in a recession. And thatâs an extremely valuable long-term strength.
Outlook
Greggs has been an interesting stock recently. Over the last few years, itâs been an example of what happens when growth expectations falter. These are situations investors need to try and avoid if they can. But Iâm not convinced thatâs the way things are at the moment.
In fact, I think thereâs still some growth left in Greggs. Iâm not expecting anything spectacular, but the current dividend yield reflects this.
Passive income investors might consider the stock. But I think anyone hoping for a rebound to previous highs should think carefully.
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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Greggs Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
