The five-year price chart for Greggs (LSE:GRG) shares shows plenty of ups and downs. Despite this volatility, compared to December 2020, it’s now (12 December) virtually unchanged. After five years of going nowhere, investors are likely to be disappointed.

On the other hand…

But long-standing shareholders have enjoyed some reasonable dividends over this period. In fact, the group’s declared payouts of 346p a share since the pandemic forced all of its stores to temporarily close.

This means a £10,000 investment made on 11 December 2020, would now have earned £2,153 in dividends. This is equivalent to a 21.5% increase in the group’s share price and is welcome compensation for the lack of capital growth.

However, as impressive as these figures are, it has to be said that the group’s dividend has been very lumpy. In common with many companies, Greggs usually makes an interim and final payment. But it also periodically makes a special payout whenever it has some spare cash.

Many believe the group’s undervalued

And healthy cash flow generation is one of the baker’s strengths. It helps it expand without having to borrow excessively as well as reward shareholders.

I suspect it’s also one of the reasons why analysts have an average share price target of 1,860p. This is approximately 13% more than its current value of 1,650p. JPMorgan is the most recent to offer an opinion. It has a more ambitious target of 2,110p. Compared to others in the sector, the investment bank reckons Greggs is a “structural winner”.

Newspapers have also reported that a couple of activist investors are pushing the baker’s management to slash costs primarily with a view to avoiding a cut-price takeover approach. This year’s increase in employer’s national insurance and the National Living Wage have taken their toll on the group. Extremely hot weather in July also affected sales. Since the start of 2025, the group’s share price has fallen 41%.

David Mercurio of Lauro Asset Management told the Sunday Times: “With the current configuration – future robust cash flow generation post the current investment cycle, a pristine balance sheet and a valuation at multi-decade lows – there is a heightened risk that Greggs ceases to be an independent entity.”

An alternative view

But not everyone sees such potential. The stock is one of the UK’s most shorted with 9.7% of its shares currently having been borrowed in the hope (expectation?) that they fall in value.

Future growth is expected to come from additional store openings. However, the baker already has over 2,600 of them. Surely the law of diminishing returns applies here? I would have thought Greggs already has a presence in the best locations. In theory, each new shop is likely to be in a less desirable — and presumably less profitable — location than the previous one. But I could be wrong, of course!

I’ll be honest, I’ve a bit of a soft spot for Greggs. It’s become a British institution and I genuinely wish the company well. But I don’t want to invest. I’m not convinced that the group’s going to grow as quickly as some anticipate and the dividend is too erratic for it to be considered a reliable income share. On this basis, I think there are better opportunities elsewhere in the sector and in the wider market.