It’s not often a growth stock pays a high-yield dividend. But in the case of Cake Box Holdings (LSE:CBOX), we have one.

That’s because the AIM-listed firm’s dividend has almost doubled over the past five years while its share price has fallen 45%. As a result, the stock’s yielding 5.5%, and more than 6% on a forward-looking basis. 

On paper then, we have a potentially attractive passive income opportunity. Or is it?

Fallen pandemic star

As a quick reminder, Cake Box is a retailer of egg-free cream celebration cakes and Asian sweets. Operating an asset-light franchise model, its store estate has now reached 310.

Cake Box was a surprise pandemic winner with its share price soaring 250% from lows as people celebrated events at home with cakes and drinks. Online sales surged through Deliveroo, Uber Eats, and Just Eat.

However, in early 2022, things crashed when accounting errors were revealed, resulting in the departure of the co-founder and CFO.

Rebuilding trust

Since then, the cake maker has worked hard to restore credibility, including appointing Michael Botha as CFO. He has extensive experience and was previously with Domino’s Pizza, another franchise operator.

Crucially, growth has continued, with revenue jumping 39% to £59.7m in FY26 (ended 29 March). This was boosted by the acquisition of Ambala, a leading manufacturer and retailer of Asian sweets (mithai), and 4.8% like-for-like sales growth at Cake Box.

Underlying EBITDA increased 41.6% to £12.4m, while diluted earnings per share (EPS) rose almost 20% to 15.4p. Given the tricky consumer backdrop, this is impressive growth, and management said in June that FY27 was off to a decent start.

Note, City analysts have 15%-16% EPS growth pencilled in for both FY27 and FY28.

Finally, the balance sheet is in good nick, with the leverage ratio standing at 0.88 times in March, below the group’s target of 1.0. Cake Box’s franchise model means it has relatively low capital requirements.

What about the dividend?

The dividend also looks attractive to me. Last year, the payout grew 5.9% to 10.8p, and is forecast to rise 10% to 11.9p this year.

While no dividend is guaranteed, the prospective payout is expected to be covered 1.5 times by underlying EPS. So it looks safe, as things stand.

The forward yield’s currently 6.1%, so an investor spending £3,000 on 1,538 shares could expect to receive around £183 in annual passive income.

Ambala growth opportunity

The combination of Cake Box and Ambala provides an excellent opportunity for future growth.

Co-founder and CEO Sukh Chamdal

I like the Ambala acquisition, as it captures demand for celebration events across diverse communities (Christmas/New Year, Diwali, Eid, etc). The £88m group’s aiming for 400 Cake Box and 100 Ambala locations.

That last target looks achievable, given that Ambala ended March with just 34 stores. A large and growing British Asian population offers plenty of room for expansion.

Insider buying

Looking ahead, inflation and the cost-of-living crisis are risks to growth, especially with the Middle East conflict restarting with a vengeance.

Meanwhile, there’s obviously a lot of high street competition for cakes. But with the dividend stock trading cheaply, at just 11 times forward earnings, I think Cake Box is worth considering.

The CEO sees good value and has been snapping up shares recently.

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Ben McPoland owns shares in Uber.