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 didn’t 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 hasn’t 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 today’s prices, that costs £269,109. That’s obviously a lot, but there are a few things investors should note about that amount. 

One is that it’s 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 company’s 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 that’s 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. That’s why the share price has fallen. But the dividend yield is now 4.5% and the company’s key strength remains firmly intact.

Value

I think the firm’s biggest asset is its reputation for value. UK consumers know it’s not worth looking for lower prices elsewhere – they’re not going to find them. 

In my view, that’s one of the best strengths a company can have. The appeal of low prices is something that doesn’t really go away over time.  Not every business can do this. It only works for companies that have lower costs than competitors – which Greggs does. 

The firm’s 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. That’s useful in any situation, but it makes the company especially resilient in a recession. And that’s an extremely valuable long-term strength.

Outlook

Greggs has been an interesting stock recently. Over the last few years, it’s been an example of what happens when growth expectations falter. These are situations investors need to try and avoid if they can. But I’m not convinced that’s the way things are at the moment. 

In fact, I think there’s still some growth left in Greggs. I’m 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.

The post How many Greggs shares does someone need to earn a £1,000 monthly passive income? appeared first on The Motley Fool UK.

More reading

• Are Greggs shares worth buying? Here’s why I’m not so sure…
• £3,000 invested in Greggs shares 2 weeks ago is now worth…
• £5,000 invested in Greggs shares 10 days ago is now worth…
• Here’s why Greggs shares could be a tasty choice for an ISA
• Forget short-term pain. Consider these 3 FTSE shares for long-term gain!

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.

See author's posts