The Transurban Group (ASX: TCL) share price has just reached a 52-week high of $16.
That means that over the past year it has gone up 39% over the past year and up 114% over the past five years, not including the distributions.
There hasn't been any business-related news released this week, so it appears that this week's gain has come from investors looking for yield.
This week we saw the US Federal Reserve decide to reduce is interest rate by 0.25%. The RBA has also been cutting its interest rate over the past couple of months.
Therefore it's getting harder to find any well-priced yield investments. I'd say that Transurban wasn't attractively priced even before the recent share price gains – but with lower interest rates arguably all businesses are worth a bit more than before.
Don't forget, Transurban shouldn't judged just by its accounting profit, it's attractive for the cashflow that it generates. Even so, it is priced at 69x FY20's estimated earnings at $16.
It seems to me that investors are choosing Transurban for the 'defensive' earnings of its toll roads. But I wonder, how likely will people use toll roads if people face money pressures? I'd be willing to drive for a bit longer to avoid paying money and I'm sure plenty of people would do that as well.
There are obviously reasons why Transurban can keep growing its earnings for at least the medium-term. It has projects in every of the major cities it's operating in at the moment. Obviously this means there are operational risks, but once they're all completed it should result in an increase in earnings.
Foolish takeaway
Transurban has a trailing distribution yield of 3.7%. I think it has risen too much for me to consider it as a good income share for now and I think there's no margin of safety – meaning there's a large valuation risk.
