Greggs (LSE:GRG) shares are gaining serious interest from passive income investors right now. That’s even though the baker’s strong record of dividend growth screeched to a halt last year.

So why are dividend chasers checking it out? It’s simple. A 10.4% fall in the Greggs share price over 12 months has pushed its dividend yield to 4.3% for 2026. That’s beats the FTSE 100‘s long-term average range of 3%–4%.

Things get even better for 2027, with the yield rising to 4.4%. But how robust are current dividend forecasts? And should I consider buying the FTSE 250 company for my income portfolio?

Dividend growth in 2027?

If City estimates are accurate, a £20,000 investment in Greggs today will provide an £860 passive income this year alone. If I reinvest these dividends and buy more Greggs shares, my total income over 2026 and 2027 will rise to £1,779.

These are based on expected dividends of:

• 69p per share in 2026.
• 70.7p per share next year.

If forecasts are correct, this year will be the third in a row that a 69p reward’s been paid. But with the Iran War worsening the existing cost-of-living crisis in the UK, is this realistic? And what about the payout increase tipped for 2027?

What’s the catch?

Let me put it this way: there’s a good chance of Greggs hitting those dividend targets, but I wouldn’t bet the house on it.

First, let’s look at dividend cover. For the next two years, expected dividends are covered 1.8 times by anticipated earnings. That’s good, but below the widely accepted security benchmark of two.

Given how sensitive the baker’s profits are to consumer spending, I want higher cover in today’s climate. My concerns are soothed somewhat by the strong balance sheet, which ended 2025 with net cash of £45.8m. But the firm’s expensive store expansion strategy means that cash pile doesn’t offer bulletproof protection for dividends.

Is Greggs a dividend share?

The truth is, I own Greggs in my portfolio. But I didn’t buy it for the dividend potential. And I won’t buy it for passive income now.

Consumer spending power in the UK remains extremely weak. And while the baker’s sales have been better more recently — helped by market share gains — the Iran War poses an ongoing risk to earnings. With costs also in danger of spiking, dividends could come under pressure.

Yet this doesn’t mean Greggs shares aren’t worth serious consideration today. The long-term investment case here remains intact, driven by new store openings in busier areas; improving exposure to delivery and evening trading; and more menu innovations.

And right now, Greggs’ share price is super cheap. The price-to-earnings (P/E) ratio has toppled to 13 times from the 10-year average of 22–23.

So will I be buying Greggs shares for my portfolio? No, but that’s only because I already have a substantial holding. I think it’s a great share for investors to consider, and especially at today’s prices.