It’s that time of year when my thoughts move away from Greggs (LSE: GRG) Festive Bakes and towards the shares as a potential investment for passive income.

Greggs might not offer the biggest dividend yield on the stock market. But at a forecast 4.2% it’s well ahead of where long-term inflation is likely to be. And it’s also better than the FTSE 250 average of around 3.4%. So how much would I need to invest to earn my grand a year?

Show me the money

To pocket £1,000 in dividends each year, I’d need to have £23,800 invested in Greggs shares. That’s a bit more than a single year’s Stocks and Shares ISA limit. But here’s a thing to bear in mind… even for those who can afford it, plonking down a whole year’s ISA on a single stock would bring too much risk for my liking.

And for those just starting a new ISA in 2026, ignoring the very important need for diversification could turn out to be a costly mistake. My approach is different. I prefer to work out how much I can invest each month, and transfer it to my ISA account. And then, every couple of months or so, invest the cash — in a different stock each time.

I like to choose a different sector each time too. I’d hate to have all my money in Greggs and later have to tell the grandchildren how I lost everything in the great 2026 sausage roll crash.

Good value Greggs?

Talking of crashes, the Greggs share price has slumped 49% since its 3,230p peak in August 2024. So is it a good stock to consider as a passive income investment at all?

I think so, though I didn’t really understand why Greggs shares reached the heights they did. At the peak, they hit a price-to-earnings (P/E) valuation as high as 22. That’s growth stock pricing, not pastry and coffee pricing.

Analysts expect a modest earnings dip this year. But with the share price down, we’re looking at a forward P/E of a more respectable 13.5. And it should drop to around 12.5 by 2027 if forecasts are close. I’m happy with that, and I’d say it carries significantly less long-term risk.

I do still see danger though, as Greggs tends to go into and out of fashion. And a couple of years of lower earnings in the face of rising costs could mean further share price weakness. But I still see it as a long-term ISA stock to consider

Building up

Here’s one example of a way to build up a decent stake (no, I can’t think of a steak pun). If I put £165 of my investment money each month into Greggs shares and reinvest all my dividends, I could reach the total I need in about 10 years. That should be enough to get my £1,000 annual passive income. And just think of the Festive Bakes and Christmas cake I could buy with that!