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Greggs (LSE:GRG) shares have been on quite the rampage over the past week — up around 29% in just five days! That’s great, but a higher share price usually results in a lower dividend yield for passive income hunters.
So how has this sudden burst upwards to £20 per share impacted the attractiveness of the dividend?
Solid results
The good news is that the forward dividend yield is still decent at 3.5%. So 500 shares would pay about £350 per year in passive income, assuming forecasts are accurate.
Of course, shareholder payouts are never ultimately assured, but in Greggs’ case I’m confident about dividend sustainability. In the first half of 2026, pre-tax profit jumped 19.7% to £76m on sales of £1.1bn (up 7.2%).
Plus, the bakery chain turned cash flow positive again as capital expenditure mellowed. CEO Roisin Currie confirmed that Greggs is “now returning to a phase of strong free cash generation as capital intensity reduces“.
The reason for this is that two new state-of-the-art facilities are set to become operational over the next 12 months. These will support expansion to 3,500 shops over the next seven years, up from 2,773 at the end of June.
The interim dividend was maintained at 19p per share, but from next year onwards Greggs will have significantly more free cash optionality for dividends and possibly share buybacks.
Adding new channels
Despite the solid first half, management didn’t raise full-year guidance. Perhaps that caution is justified, given the heatwaves we’ve been having. After all, people do eat less in sweltering weather, so sales in the second half might be a bit lighter.
That said, Greggs has improved its options on this front recently, with more iced teas and coffees. And it’s offering more fibre and protein-rich food for people on GLP-1 weight-loss drugs like Mounjaro.
Greggs is also having success with its Bake-at-Home range, which is selling well in both Tesco and Iceland. This is set to be expanded to further products in future, while a self-service ‘Greggs Express’ format in petrol forecourts is being trialled.
We remain focused on opening shops in more catchments and introducing convenient ways for customers to pick up Greggs favourites, while broadening and innovating our menu in line with changing tastes and trends.
Roisin Currie.
Is it worth digging into?
Most writers here at The Twelfth Magpie have viewed Greggs as undervalued this year. And while it’s obviously not as cheap as last week, a forward earnings ratio of 15.8 isn’t too expensive for a firm with a rock-solid brand that’s still growing and nicking market share.
Admittedly, inflation and rising unemployment make things difficult in the near term. Consumers are sadly feeling the pinch and we don’t know how long this will last. The Middle East crisis adds further cost uncertainty for Greggs next year.
But weighing things up, I think the stock’s worth thinking about, assuming an investor’s willing to hold for the long run. The new manufacturing and distribution hubs in Derby and Kettering should boost efficiency from 2028 onwards.
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Ben McPoland has no position in any of the companies mentioned.
This story originally appeared on Motley Fool
