It has not been an easy time for shareholders in baker Greggs (LSE: GRG). I have been buying Greggs shares hoping for a turnaround at the firm, but while I remain optimistic about the long-term prospects I am starting to get a sinking feeling about where things are going this year.
Greggs has lost value, though the yield’s attractive
Take the past 12 months as an example.
The Greggs share price has fallen by 14%. So someone who invested £10,000 12 months ago would now be nursing a paper loss of around £1,365.
A paper loss is just that. It can disappear if the share price recovers before the shareholder sells the holding.
Still, it can be uncomfortable to buy a share thinking it is a bargain and then watch as it persistently shows up in red ink on a portfolio statement!
There is also an opportunity cost. The money used for a share that has gone down could instead have been used for one that moved up during that period. Of course, hindsight is a wonderful thing!
It is not all bad news, though. There is a dividend yield and at 4.5% I see it as attractive.
The higher share price a year ago means that someone investing then would be earning a slightly lower yield, but the £10,000 should still be earning close to £400 per year in dividends.
Events are testing my optimism
I reckon that at a fundamental level, Greggs is a very good business.
It has a simple but effective, proven business formula. It operates in a market where demand is fairly resilient and its focus on cost gives it a strong point of differentiation to some rivals.
But things have been changing that threaten that investment case.
For starters, demand for affordable, convenient food may not be as resilient as presumed: appetite suppression drugs are a risk.
Then there is Greggs’ cost base. Its large number of employees means higher National Insurance and wage costs have eaten into profits.
I see that as an ongoing risk. But I am also concerned about what soaring energy costs will mean for the company’s bottom line, at least in the short- to medium-term.
With several thousand shops using ovens and other power-hungry equipment, Greggs’ already huge power bills could get even bigger.
Taking the long-term approach
Such risks mean that Greggs shares could have a bumpy ride.
This, though, is where I think a long-term approach to investing can prove its worth.
Those risks are real and I reckon they could potentially dog the Greggs share price for the foreseeable future. However, although my money is tied up in Greggs shares, I am at least earning a solid dividend while I own them.
The fundamental investment case still seems attractive to me and over time I hope the share price will rise again to reflect that.
So, taking the long-term approach, I plan simply to hang onto my shares and keep collecting any dividends the company pays along the way.
