£10,000 invested in Greggs shares would deliver this much passive income…
A £10,000 investment in Greggs shares, based on the latest dividend forecasts, would generate a steadily growing stream of passive income over the next several years.
With the company expected to pay a dividend per share of 68.04p in 2025, 70.1p in 2026, and 74.02p in 2027, an investor holding around 513 shares (£10,000-worth) would receive annual dividend payments of about £349 in 2025, £359 in 2026, and £380 in 2027.
This is equal to a projected yield rising from around 3.55% to 3.86% over the period. In turn, this showcases Greggs’ commitment to increasing its payout in line with modest improvements in earnings.
Is it sustainable?
The company’s dividend coverage appears sustainable. The payout ratio’s forecasted to remain just above 50% throughout the period. This suggests that Greggs is maintaining a balance between rewarding shareholders and retaining earnings for future growth.
For income-focused investors, this level of coverage is reassuring, as it indicates that the dividend’s unlikely to be at risk, barring a significant downturn in trading conditions. In other words, earnings could halve and the company would still have enough to deliver its stated payout.
My concerns
However, the valuation of Greggs shares remains a sticking point for me. The forward price-to-earnings ratio’s projected at 14.2 times earnings for 2025, 13.8 for 2026, and 13.3 for 2027. While these multiples have fallen from previous highs, they still suggest the shares are expensive, relative to the company’s expected earnings growth.
For investors who prioritise value, these metrics may give pause. They tell us that there’s limited room for multiple expansion unless the company can deliver stronger-than-expected growth. The same occurs when I factor in the dividend yield.
It can’t keep expanding
The expanding dividend yield will undoubtedly attract many investors, especially in an environment where reliable income’s highly sought after. Greggs’ track record of dividend growth and its clear policy of distributing around half of its earnings will be a key draw for those seeking passive income.
However, there are legitimate concerns about the company’s longer-term growth prospects. The pace of store openings in recent years raises the possibility that Greggs is approaching saturation point in the UK market. It’s already mostly everywhere. This could limit the scope for further expansion-driven growth.
Additionally, the company’s core product range isn’t especially healthy. I find this a cause for concern as consumer preferences continue to shift towards healthier eating options, albeit slowly.
The bottom line
Personally, I think there are much better investment opportunities than Greggs, and I don’t think it’s worth considering. However, I appreciate that some investors think differently. They will likely be drawn to that increasing yield and a business they know and understand.
After all, many renowned investors tell us to invest in what we understand, and it’s a pretty simple business to get.
The post £10,000 invested in Greggs shares would deliver this much passive income… appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
More reading
- £5,000 invested in Greggs shares 1 month ago is now worth…
- What on earth is going on with the Greggs share price?
- 2 cheap shares I’m eyeing to buy again this July
- Greggs shares still look temptingly cheap to me!
- Start buying shares for £500? Here’s how – and some reasons why!
James Fox 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.
