If I invest £10,000 in Greggs shares, how much passive income could I get?

Greggs shares offer investors the chance to bag some dividends in their portfolios. But are they worth buying today?

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Greggs (LSE: GRG) shares have easily outperformed the broader UK stock market over the last three decades. And in this time, they’ve also served up tasty income on the side for long-term shareholders.

In 1993, one share paid a dividend of 1.8p. By 2023, that had risen to 62p per share. That’s an incredible 33-fold increase.

But that’s water under the bridge now. How much does this FTSE 250 stock offer today from a passive income perspective?

Not a high-yield stock

If I invest 10 grand in Greggs in my Stocks and Shares ISA at the current price of 2,840p, I’ll get around 350 shares (factoring in stamp duty).

As mentioned, Greggs declared an ordinary dividend of 62p per share last year. That means the stock carries a modest 2.18% dividend yield.

In 2024, brokers expect the payout to be bumped up by 11% to 69p per share. Then by another 10% to 74p per share in 2025. This would translate into prospective yields of 2.41% and 2.67%, respectively.

That’s better, but still not high. It means I could expect around £500 in dividends over the next couple of years. However, if I invested today, I’d also catch the 46p final dividend for FY2023 (to be paid in May).

On top of this, the company announced a special dividend of 40p per share. Together, these would add a further £301 to my total.

Of course, dividends aren’t guaranteed, and Greggs paid none in 2020 when lockdowns shut high streets.

Peak Greggs fears

The reason the dividend yield isn’t particularly high is because this is more of a growth stock.

As the pasty maker has risen, so too has the share price. It’s up 476% over 10 years and 55.5% over the past five. And this has basically kept the yield in check.

Now, Greggs might not immediately seem like a growth company. After all, its bakeries have been a fixture on Britain’s windswept high streets for, well, seemingly an eternity.

How much growth can there have been selling sausage rolls and steak bakes?

Well, in 2018, revenue clocked in at just over £1bn while the operating profit was £82.6m. In 2024, the firm is expected to generate an operating profit of £190m from revenue of around £2bn. So, there’s been a doubling in revenue and profits.

The main risk I see is if the UK hits ‘peak Greggs’, with airports, high streets, and malls oversaturated with locations. CEO Roisin Currie says we are “nowhere near” that point yet.

But the stock, trading at a premium 20 times earnings, could head lower were this to suddenly happen.

Breakfast king

However, going on last year’s results, management is correct. We’ve not peaked yet. Total sales jumped 19.6% year on year to £1.8bn, while underlying pre-tax profit rose 13.1% to £167m.

It added 145 net new shops, bringing the year-end total to 2,473 locations. Impressively, it also overtook McDonald’s as the UK’s leading food-to-go breakfast provider.

Looking ahead, it’s aiming for revenue of £2.4bn by 2026.

I invested at 2,314p a share in October, then had a second bite in February at 2,716p. Overall, I’m up around 13%, but it’s early days. I may scoop up a third portion of this top growth stock later this year.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Greggs Plc and McDonald's. 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.

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