The rise of FTSE 250 incumbent Greggs (LSE: GRG) has been impressive. Is now the ideal time for me to add some shares to my holdings for dividends and growth? Let’s tuck into the finer details!
On a roll!
Greggs has grown into a staple across UK high streets, shopping centres, and even airports and train stations. It sells rather lovely sandwiches, savoury goods, pastries, hot drinks, and much more. You can probably tell I frequent my local Greggs a fair bit!
As I write, Greggs shares trade for 2,498p. At this time last year, they were trading for 2,274p, which is a 9% increase over a 12-month period.
The bull and bear cases
The company’s performance during the current volatility has been positive. Its Q3 update, released in October, showed that Greggs isn’t being hindered too badly by soaring inflation and rising interest rates. Total sales increased by 20.8% and the business opened 82 new locations in the nine months of the year so far. Finally, a successful trial with delivery giant Uber Eats is now being rolled out permanently.
External headwinds could still hinder Greggs, in my eyes. Rising inflation is a worry as costs may rise and it may need to increase prices to continue to perform well. I’ll keep an eye on performance moving forward to understand any impact here.
Another risk that Greggs could encounter is growth aspirations being trickier to execute. Although the business has done well in opening new stores recently, and it continues to target new locations, higher interest rates have dampened the commercial property market. It could find acquiring or leasing new locations more expensive. This could impact profitability as well as potential returns too.
Coming back to the good stuff, Greggs does have a solid balance sheet. This is helpful for a couple of reasons. Firstly, it provides a buffer against current volatility. Plus, it sets it in good stead to continue its growth plans.
Speaking of growth plans, Greggs could capitalise on a franchise model to open new locations. This could operate in a similar way that McDonald’s does and take the business to new heights internationally. However, quality and cost control can be harder to rein in when franchisees are in charge.
Finally, Greggs shares would boost my passive income with a dividend yield of 2.4%. This is higher than the FTSE 250 average of 1.9%. However, I do understand that dividends are never guaranteed.
That’s a wrap!
I reckon Greggs shares will continue to head upwards, as will the business in terms of performance and returns.
For this reason I’d buy some shares for my holdings when I next have some investable cash. The company’s ability to offer a variety of well-priced food – especially during times of economic difficulty – has helped it do well recently. I’m excited to see how well it could do once volatility cools!
