Dividend Sustainability in Closed-End Funds: A Case Study of Lazard Global Total Return and Income Fund

The Allure and Risks of High-Yield Closed-End Funds

Closed-end funds (CEFs) like Lazard Global Total Return and Income Fund (LGI) have long attracted income-focused investors with their attractive yields, often exceeding 10%. LGI's recent declaration of a $0.14646 per share monthly dividend—payable October 22, 2025—yields 10.04% based on its current price Lazard Global Total Return and Income Fund (LGI) Dividend^[2]. However, such high yields demand scrutiny. A payout ratio of 130.23%—indicating dividends exceed net investment income—raises red flags about sustainability Lazard Global Total Return And Income Fund Stock Dividends^[3]. This analysis explores how LGI balances income generation with risk-adjusted returns and leverage, offering lessons for CEF investors.

Dividend Sustainability: Income Generation vs. Leverage

LGI's investment strategy relies on a blend of global equities and embedded leverage, including forward currency contracts, to amplify returns Lazard Global Total Return and Income Fund, Inc.^[1]. As of August 2025, the fund holds 60–80 U.S. and non-U.S. equities, with 50.76% allocated to U.S. stocks, including heavyweights like Microsoft and Amazon Lazard Global Total Return And Income Fund Stock Dividends^[3]. While this diversification mitigates sector-specific risks, the fund's 11.62% leverage ratio amplifies volatility Nine global funds with the highest Sharpe ratios year in year out^[5].

Historically, LGI's dividends have grown at an average of 12% annually, but the recent drop from $0.14941 to $0.14646 per share in 2025 signals potential strain Lazard Global Total Return And Income Fund Stock Dividends^[3]. A payout ratio above 100% means the fund is distributing more than its net investment income, relying on capital gains and return of capital to sustain payouts. This practice, while common in CEFs, risks eroding principal over time.

Risk-Adjusted Returns: A Missing Metric

Despite LGI's 13.75% total return on net asset value (NAV) over the past 12 months LGI Lazard Global Total Return and Income, closed-end fund^[4], the absence of a Sharpe ratio—a key metric for evaluating risk-adjusted returns—leaves gaps in assessing its performance. While broader global funds like those with a 1.17 Sharpe ratio (past year) set benchmarks Nine global funds with the highest Sharpe ratios year in year out^[5], LGI's reliance on leverage and emerging market exposure likely increases its volatility. For instance, 86% of its recent distribution came from long-term capital gains, reflecting a strategy prioritizing capital appreciation over steady income Lazard Global Total Return and Income Fund Declares Monthly Distribution^[6].

Distribution Sources: A Double-Edged Sword

LGI's October 2025 distribution breakdown reveals critical insights:
- 10% from net investment income
- 4% from short-term capital gains
- 86% from long-term capital gains
- 0% from return of capital Lazard Global Total Return and Income Fund Declares Monthly Distribution^[6]

While this structure avoids immediate principal erosion, the heavy reliance on capital gains suggests the fund's ability to sustain dividends during market downturns is uncertain. Cumulative distributions for 2025 include 39% from return of capital, a practice that artificially inflates yields but reduces the fund's asset base Lazard Global Total Return and Income Fund Declares Monthly Distribution^[6].

Conclusion: Balancing Yield and Long-Term Viability

LGI exemplifies the trade-offs inherent in high-yield CEFs. Its 10.04% yield is enticing, but a payout ratio of 130.23% and leverage-driven strategy underscore structural risks. Investors must weigh the immediate appeal of income against the fund's reliance on capital gains and its exposure to global market swings. For those prioritizing sustainability, LGI's distribution model may serve as a cautionary tale—highlighting the need to scrutinize not just yields, but the sources and sustainability of those payouts.