For many years, Greggs (LSE:GRG) shares didn’t offer investors much in the way of income.

Granted, there were rising payouts and plenty of special dividends as the sausage roll supremo expanded store count, profits and (some would say) waistlines. Great for existing shareholders. But a near-500% share price rise in the decade to August 2024 kept the dividend yield pretty modest for new investors.

Since the summer of 2024 though, Greggs stock has crashed 50%! Not great for existing shareholders.

But for new investors, the income opportunity now looks a lot more attractive.

Decent dividend yield

After the fall, the stock has a 12-month forecast dividend yield of 4.35%. That’s higher than both the FTSE 250 (3.23%) and what Greggs averaged in 2023 (2.38%).

As I type, the current share price is 1,594p. This means it would cost just under £8,000 to buy 500 Greggs shares today for an ISA portfolio. If the dividend forecast proves accurate, these would pay out £346 in tax-free passive income this year (in May and October).

Of course, no dividend’s set in stone. But it’s worth noting that Greggs’ forecast earnings should cover the payout almost two times over.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Why has the stock tanked?

Greggs has been battered by higher wage costs, rising inflation, weak like-for-like sales growth, and some impact from appetite-suppressing weight-loss drugs. Oh, and heavy snow in January 2025 and heat waves over the summer.

It always sounds like a bit of a cop-out when management blames the weather for tepid sales. But in the case of Greggs, it makes sense. There were four separate heatwaves in 2025, which overall was officially the hottest on record for the UK.

While sales of iced coffees and peach teas spiked, they weren’t enough to offset the drop in people entering Greggs for hot food. I have to admit, a piping-hot Steak Bake isn’t my go-to on a sweltering day.

Due to all this, Greggs expects 2025 and 2026 pre-tax profits to remain broadly flat, at around £173m.

It’s not all doom and gloom

Despite the tough backdrop, it outperformed the wider market last year. It grew total sales 6.8% as it opened four new shops a week on average. Like-for-like sales increased by a more modest 2.2%, but the Q4 figure (2.9%) was higher than Q3 (1.5%).

Encouragingly, the firm’s still growing its market share of visits, including at breakfast and in the evening. It’s opening locations in more supermarkets, as well as selling frozen food in them.

Looking ahead, easing inflation should help both the business and consumer confidence. Lower interest rates — expected to fall to 3% by the end of the year — should also be a positive moving forward.

Another thing worth noting is that capital expenditures related to two new distributions centres have peaked. City analysts expect Greggs to grow earnings per share by around 22% by 2028. This puts the stock on a cheap-looking forward multiple of 10.4.

On 27 December, the bakery chain had 2,739 shops trading, with 602 of these franchised units. But Greggs is aiming for as many as 3,500 shops long term.

Pair this growth potential with the low valuation and 4.3% dividend yield, and I think Greggs is worth considering on the dip.