The UK market is full of high-yielding dividend stocks that are great passive income options, with many offering over 3.5% average yields. However, growth is also crucial when considering stocks for an income portfolio.

One of my favorites FTSE 250 Index supplies are Greggs (LSE: GRG). The popular high street bakery chain has been posting impressive results since 2014, up 434% in the last 10 years, beating the wider UK market.

But past performance is no guide to future results. So how much would a £10,000 investment today earn me in the future?

Let’s take a closer look at this.

A solid foundation

There’s no doubt that Greggs is a beloved and respected British brand. It’s a cake and sandwich shop that many hungry workers flock to when it’s lunchtime. According to Statista, it was the most popular food brand in the UK in the first quarter of 2024, beating out American rivals like Burger King and McDonald’s.

What’s more, it’s one of the most productive. Since 2006, the number of Greggs stores in the UK has almost doubled. It now has almost 2,500 stores on high streets, stations and airports across the country.

With a market capitalisation of £3.25bn and revenues of £1.8bn last year, it’s protected to say the company has a solid foundation for future growth. However, half-year 2024 results revealed a slowdown. Net income of £55.1m was down 8.6% compared to the first half of 2023, while earnings per share (EPS) fell from 59p to 54p.

Valuation and forecasts

The stock may be overpriced based on various metrics. It’s 43% above fair value based on future cash flow estimates, and the price-to-book (P/B) ratio shows the stock is trading at 6.5 times the company’s book value. That’s not uncommon for popular stocks, but it could limit growth in the low term. It may need to post increasingly better results to attract more buyers at this level.

Analysts are predicting revenue will grow by 22% over the next two years, with profits rising by around 13%. The average 12-month price target is just over £33, up 4.3% from today’s price.

Dividends

Greggs had a good dividend history before Covid. Payouts rose between 2000 and 2018, with a brief pause in 2013. They were reduced in 2019 and cut for a year in 2020. However, they returned with a vengeance in 2021, almost doubling the 2018 payout.

However, at 2% the yield is low and will not add much value. On an investment of £10,000 per year it would pay out only £20. However, assuming an average annual raise in prices of 5% and reinvested dividends, the pot could grow over time.

At that rate, it could double to £20,000 after 10 years and pay dividends of £370 a month. That’s not much, but it’s more than a typical savings account.

Final Thoughts

I think Greggs is a solid and reliable value stock, but it’s not a great passive income. I’m worried it might exhaust its market in the UK. I think it has the potential to expand in Europe, but might struggle to find a foothold in the US.

I like my Greggs stock and I’m a regular customer so I plan to keep it. But I’m not buying any more. I’m worried about how it will grow in the future.

I trust he has a plan.