Greggs (LSE:GRG) shares have been on a roll in 2024, rising 15% since the start of the year. This is a continuation of the upward trend the bakery chain has been on following the 2022 stock market correction. And income investors have been especially rewarded with the announcement of a special dividend paid back in May.
With the stock price climbing significantly, Greggs shares currently yield a modest 2.1%. But after ignoring the hiccup of the pandemic, the firm’s a long history of hiking shareholder payouts. So it’s no surprise that the dividend forecast for the sausage roll and pastie maker’s looking quite encouraging.
What do the analysts’ projections say? And should I consider adding this business to my portfolio today?
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Store expansion
Following its latest trading update, Greggs continues to be a UK favourite. In the three months leading to the end of September, total sales expanded 10.6%. Around half of this originated from existing locations. The rest stemmed from the net opening of 86 stores as management continues to expand its real estate footprint.
The firm now has 2,559 locations in its portfolio. And with another 80 net new ones planned before the end of 2024, management appears to be on track to reach its 3,000-unit target by 2026.
Revenue growth this quarter was a tad slower than analysts were expecting. Yet management appears confident regarding its full-year outlook, as guidance was reiterated. So it seems that analysts are still using these internally projected figures along with the medium-term store count target to project earnings and, subsequently, dividends.
| Year | Dividend Per Share | Dividend Growth | Dividend Yield |
| 2024 | 73.6p | 18.7% | 2.5% |
| 2025 | 82.4p | 11.9% | 2.7% |
| 2026 | 92.2p | 11.9% | 3.1% |
A low-yielding opportunity?
Forecasts are notoriously inaccurate, but they do provide some valuable rough insight as to what may lie on the horizon. And the current projections do appear to be relatively realistic. After all, the company has averaged an annual dividend growth of 12.8% over the last decade.
Looking at the table, it seems investors can expect a similar performance moving forward. Yet even if this turns out to be true, the yield isn’t exactly jaw-dropping. In fact, the FTSE 100 already offers 3.5% right now. However, if management’s able to maintain its historical dividend growth beyond 2026, the yield could eventually grow into something far more enticing.
Management’s already demonstrated its prowess in understanding the UK breakfast market. That’s evident given it now controls the lion’s share of market capture. And that does make me optimistic the business will continue to deliver.
However, with half of its growth seemingly stemming from the opening of new stores, there’s a growing risk of self-cannibalisation. Suppose new locations are placed too closely together. In that case, they may end up competing against each other, resulting in higher rental costs without necessarily boosting total sales and profits.
Personally, I feel this is a risk worth taking, given the group’s impressive track record and encouraging outlook for dividends. That’s why I’m planning on adding some shares to my portfolio once I have more capital at hand.
