Greggs‘ (LSE:GRG) share price has made many retail investors a lot poorer over the last year. However, I never quite understood its popularity, and certainly didn’t understand why a sausage roll-maker was trading for 25 times forward earnings.
However, it’s returned to earth with a thump, shedding 37% of its value over 12 months, and even more from its peak. The stock’s now trading at 13 times forward earnings. This is definitely seems more reasonable, although I have some concerns about its capacity to hit this target in 2025.
What’s more, its forward dividend yield’s 4%. That’s not an insignificant figure and it may complement the portfolio of an income-focused investor.
Growth’s slowing and it’s reaching saturation point
Greggs is facing a slowdown in growth as it nears market saturation. After years of rapid expansion and double-digit sales increases, like-for-like sales grew by just 1.7% in the first nine weeks of 2025. That’s down from 2.5% in late 2024. The company blamed the weather for lower footfall.
However, this deceleration has raised concerns among analysts about whether Greggs’ UK market is reaching its limits, particularly as the chain now operates over 2,600 outlets, with plans for another 140-150 openings this year.
The ’Food on the Go’ market is stagnating amid weaker consumer spending. What’s more, Greggs faces challenges balancing affordability with rising costs. Inflationary pressures and higher input costs have forced price hikes, potentially alienating its value-conscious customer base.
Moreover, with only 27,000 potential customers per outlet — one of the lowest among competitors — analysts an Panmure Liberum suggests oversupply could be an issue in regions like northern England and central Scotland.
The CEO disagrees. Roisin Currie believes the brand’s underrepresented in some areas. Personally, and anecdotally, I’m not sure if that’s the case.
Maturing into a dividend stock
On paper, with revenue slowing, the stock slumping, and the dividend yield rising, it may be argued that Greggs has, rather quickly, matured into a dividend stock.
The dividend payments will increase modestly over the medium term, according to the forecast, and dividend coverage is around two times. In other words, the company’s distributing around 50% of earnings to shareholders. This is broadly considered to be a sensible and sustainable ratio.
With this in mind, it could now be a desirable investment for investors looking for passive income, or drawing on a pension. The yield’s modest, but broadly and despite my concerns about the longevity of its expansion, the business is healthy.
However, it’s still not the type of investment I’m looking for. I’m unconvinced by its economic moat, and in the same way I wouldn’t invest in tobacco stocks, I’m not too keen on pastries and baked goods. They’re not good for us, and regulation could account for that in the future.
