
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
The wisdom of Warren Buffett reflects a value-based philosophy about investing that says investors are buying shares in a business, and encourages strategic thinking about investment time horizon. Before placing a buy order for a stock, a great question we can ask is whether we would still be comfortable making the investment if we couldn’t sell it for many years?
A “buy-and-hold” approach may call for a time horizon that spans a long period of time — maybe even lasting for a twenty year holding period. Suppose such a “buy-and-hold” investor had looked into buying shares of Alliant Energy Corp (NASD: LNT) back in 2005. Let’s take a look at how such an investment would have worked out for that buy-and-hold investor:
Start date: | 04/29/2005 |
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End date: | 04/28/2025 | ||||
Start price/share: | $13.17 | ||||
End price/share: | $60.90 | ||||
Starting shares: | 759.30 | ||||
Ending shares: | 1,549.55 | ||||
Dividends reinvested/share: | $22.81 | ||||
Total return: | 843.67% | ||||
Average annual return: | 11.87% | ||||
Starting investment: | $10,000.00 | ||||
Ending investment: | $94,364.06 |
The above analysis shows the twenty year investment result worked out quite well, with an annualized rate of return of 11.87%. This would have turned a $10K investment made 20 years ago into $94,364.06 today (as of 04/28/2025). On a total return basis, that’s a result of 843.67% (something to think about: how might LNT shares perform over the next 20 years?). [These numbers were computed with the Dividend Channel DRIP Returns Calculator.]
Notice that Alliant Energy Corp paid investors a total of $22.81/share in dividends over the 20 holding period, marking a second component of the total return beyond share price change alone. Much like watering a tree, reinvesting dividends can help an investment to grow over time — for the above calculations we assume dividend reinvestment (and for this exercise the closing price on ex-date is used for the reinvestment of a given dividend).
Based upon the most recent annualized dividend rate of 2.03/share, we calculate that LNT has a current yield of approximately 3.33%. Another interesting datapoint we can examine is ‘yield on cost’ — in other words, we can express the current annualized dividend of 2.03 against the original $13.17/share purchase price. This works out to a yield on cost of 25.28%.
One more piece of investment wisdom to leave you with:
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” — Robert Allen