Dividend Champion Greggs Lifts Payout by 3%

LONDON -- Greggs (LSE: GRG.L  ) has one of the best dividend records in the U.K., having raised its payout every year since it joined the stock market in 1984. This morning, the high street bakery chain revealed a 4.5% drop in half-time profits to 16.5 million pounds, yet it still pledged to increase its dividend by 3.4% to 6.0 pence per share.

The shares eased a little in early trading, falling 1% to 500 pence. This mean Greggs is currently valued at 500 million pounds, and trades on a forward P/E ratio of 12 with a dividend yield of 4%.

As with many retailers, the recent wet weather has caught the business on the hop a little. Greggs said its "market remained challenging and was particularly affected by the record levels of rainfall in the second quarter with UK High Street footfall down over 7%." It added that it "was not immune to this and like-for-like sales fell by 3.5% in the second quarter and by 2.3% in the first half overall."

However, Greggs appears to have been better placed to cope than most, citing its cost control, new promotions such as "Lunch for Less," and an increased contribution from its wholesale business as mitigating factors.

Interestingly, Greggs also said its dividend increase was partially down to the 2-percentage-point reduction in corporation tax that comes into effect this year.

Greggs is still expanding its reach across the U.K. Some 33 net stores were added in the first half, taking the total number of stores to more than1,600. Over the year as a whole, Greggs expects to add a total of 90 stores. It's also testing coffee shops and a more traditional baker's format imaginatively called Greggs the Bakery.

Looking further ahead, Greggs reckons that global food price increases are on their way, but it expects to maintain its profit margins in the second half of the year.

All told, Greggs is a great example of a simple business that has delivered excellent returns for its shareholders over the long haul. For more information on identifying businesses such as Greggs, you can download "10 Steps To Making A Million In The Market".

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Stuart does not own any of the shares listed above. The Motley Fool has a disclosure policy.
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