Yield: Riskier than it looks

INFRASTRUCTURE

Bertrand Cliquet, fund manager of the Lazard Global Listed Infrastructure Equity fund, explains the shortcomings of misinterpreting yield as a metric for valuation.

The value of any asset is the net present value of its future cash flows. How those cash flows are paid out to the various claimants on them - typically shareholders (in the form of dividends), and lenders (in the form of interest and principal) - does not affect the value of the firm. Dividends are in fact a reflection of the financing strategy for a firm, rather than a driver of its value. The higher the dividend pay-out ratio, the greater the reliance on debt or equity financing for sustaining the firm’s operations, and vice versa. A dividend paid out to shareholders comes directly...