Greggs‘ (LSE: GRG) shares have tumbled 22% in the past year. Over five years, they’re down 9%, which is disappointing for a stock that used to have a habit of outperforming the FTSE 250 index (to which it belongs).
However, the beloved bakery chain has also been dishing out dividends as well as sausage rolls over most of that time. Would these cash payouts have erased the 9% loss and put a £10,000 investment into positive territory? Let’s find out.
Dividends
Back in 2020, we were in the middle of the pandemic. High streets were empty and people were stuck at home. Greggs’ revenue fell sharply and it paid no dividend that year (proof that cash dividends are never guaranteed).
However, the company made up for it in 2021 when it paid out 57p per share. Then 59p and 62p in the two years after. There have been a couple of 40p special dividends too.
Adding them all up, Greggs has paid out £2.77 per share since 2021. Therefore, an investor would have received around £1,205 in dividends over this time from the 435 shares that £10k would have bought the start of 2020.
It means that the investment would be a couple of hundred quid up over this time. Not great.
That said, Greggs is forecast to pay another 49p per share in May, then 70p for this financial year. That would add another £517 to the total return.
If the share price gets moving in the right direction again, this hypothetical investment could still turn out to be a good one. But what are the chances of a strong Greggs share price recovery this year?
Risks
Unfortunately, not great, I’d say. Investors have soured on the stock because the company’s facing extra costs from April following the Budget. This has forced it to raise prices on food, which might put some consumers off. After all, Greggs is meant to offer value.
More broadly, the UK economy’s plagued by weak consumer spending, high taxes, and low growth. So there’s quite a bit of uncertainty around at the moment.
Looking beyond the doom and gloom
Given all this, it wouldn’t be too shocking if the company was closing loads of stores and suffering double-digit sales declines. Yet that’s not the case.
In 2024, total sales topped £2bn for the first time ever, growing 11.3% year on year. Like-for-like sales in company-managed shops edged 5.5% higher.
Meanwhile, it plans to open a further 140-150 shops this year, bringing the total closer to its target of at least 3,000.
Looking ahead, analysts expect revenue growth of about 8-9% this year. Then the same in 2026. Admittedly, that’s not mind-blowing, but it does demonstrate to me how resilient Greggs is. If it can survive this truly dreadful period for retailers, then I think it will do just fine whenever things improve.
Last month, HSBC analysts upgraded the stock to Buy from Hold, pointing out that concerns about the maturity of Greggs’ business might be “overly pessimistic“. As a shareholder, I agree with that.
The stock trades at just 15 times this year’s forecast earnings and offers a 3.2% dividend yield. I still think it’s worth considering for long-term investors.
This post was originally published on Motley Fool
