Alliant Energy Corp. - Dividend Fact Sheet

Apr.11.14 | About: Alliant Energy (LNT)


Alliant Energy Corporation (NYSE:LNT) is a U.S.-based electric and gas utility which serves clients in Iowa, Minnesota and Wisconsin. LNT is part of no major index.

LNT is an American corporation and therefore pays its quarterly dividends in U.S. dollars. All the following figures are thus in U.S. dollars. Notably, foreign investors will likely be subjected to withholding tax.

Dividend Calendar

LNT pays a quarterly dividend. The dividends are generally declared in January, April, July, and October, and are generally paid in February, May, August, and November.

LNT generally increases its quarterly dividend once a year, in January. The last increase in January 2014 was of 8.5% (from $0.47 per quarter to $0.51 per quarter).

Dividend History

With the most recent increase, LNT has increased its quarterly dividend for 11 consecutive years, making LNT a dividend contender (between 10 and 24 years of consecutive dividend increases).

The evolution of the annualized dividend and of its growth over the last ten years is presented in the graph below.

Overall, despite some ups and downs, LNT has managed to steadily increased its dividend over the last 10 years. As we can see, the dividend growth rate has remained within the 4-12% range with an average of 7%. For a utility, a 7% average dividend growth rate is not bad at all.

Dividend Analysis

In this section, I verify two important aspects of the dividend:

  1. Is the current dividend safe?

  2. Is the current dividend likely to grow?

Understandably, answering no to either one of these questions should mark the stock under consideration as being unsuitable for dividend investment purpose.

Is the current dividend safe?

To determine the safety of the dividend, I check the historical levels, the current level and the evolution of the payout ratio with respect to the earnings and, when relevant, with respect to the free cash flow.

First, the evolution of the earnings, dividends, and payout ratios.

The first thing that jumps out of the graph is the evolution of the earnings between 2004 and 2010. During these years, earnings were more or less erratic.

However, since 2010, the earnings have been on a much steadier upward trend, which is reassuring for us. As dividend investors, erratic earnings prevent us from making sound estimates about the future dividend growth rate.

Also, with the steadier earnings, we can see that the payout ratio has stabilized around 60%, which is very good for a utility. Speaking of the payout ratio, in view of the evolution of the payout ratio since 2010, it might be reasonable to assume that LNT is trying to maintain its payout ratio around 60%. Consequently, we may also safely assume that future dividend increases will be mostly in line with the growth in earnings.

In any event, with steadily growing earnings and a safe payout ratio (~60%), I must conclude that LNT's dividend is safe.

Overall, I think the current dividend is safe.

Is the current dividend likely to grow?

Basically, dividends are paid from earnings. If the earnings are growing, the dividends should also grow.

In the case of LNT, the company has shown a willingness to increase its dividend. So, as long as the earnings are growing, the dividend should grow. The real question is at what rate?

Given the facts that LNT is a utility and thus operates in a mostly regulated business environment, the earnings growth potential is somewhat limited.

Though the recent earnings growth rate has been relatively high for a utility at around 8.6%, future earnings growth is likely to be slower.

Given the regulated nature of LNT's business, I estimated the future earning growth rate to be closer to 4 to 6%. Consequently, I estimate similar growth rates for the dividend.

So, the dividend is likely to grow but not as fast as in the recent past.

Overall, I think the current dividend is likely to grow in the foreseeable future.

Stock Valuation

Estimated Fair Values

To calculate a range of fair values, I calculate how much one share will return in cumulative dividends over the next 20 years, according to different scenarios, and adjusted for inflation.

For LNT, I've used the following inputs:

  • Share price: $56.00

  • Dividend rate: $2.04

  • Dividend growth rate:

    • Optimistic scenario: 7.0%
    • Realistic scenario: 5.6%
    • Pessimistic scenario: 4.2%
  • Inflation rate: 3.5%

The optimistic DGR generally corresponds to the 10-year average, while the realistic and pessimistic DGRs respectively correspond to 80% and 60% of the optimistic DGR.

According to the above values, the range of estimated fair values for LNT varies from $43.53 (pessimistic) to $56.99 (optimistic) with a realistic value of $49.71.

With a current share price around $56.00, LNT appears almost overvalued. I've also calculated that the DGR would need to be 6.82% over the next 20 years to justify the current price of $56.00.

Such a dividend growth rate is not impossible to achieve. It is even slightly under LNT's average DGR over the last 10 years. However, I have some doubts that LNT would be able to maintain such a rate over the long term. After all, LNT does operate in a regulated environment with limited growth potential.

At $56.00, I think LNT is slightly overvalued as a dividend investment.

Estimated Cash Return

With the estimated cash return, I calculate how much cumulative dividends a fixed investment in the stock under consideration will return over a period of years.

Estimated cash return values allow to compare dividend stocks with different yields and different growth rates.

For LNT, I've used the following inputs:

  • Initial investment: $1000

  • Current yield: 3.64%

  • Dividend growth rate:

    • Optimistic scenario: 7.0%
    • Realistic scenario: 5.6%
    • Pessimistic scenario: 4.2%

Notably, the DGRs are the same as the DGRs used for valuation.

I also compare the various estimated cash return values with the estimated cash return of a benchmark dividend stock having a yield of 3% and a dividend growth rate of 8% (e.g. Procter & Gamble (NYSE:PG) or Johnson & Johnson (NYSE:JNJ)).

What is clear from the graph is that the only way for LNT to beat the benchmark stock would be to maintain a DGR of 7% (i.e. the optimistic DGR) over the long term.

In my view, though such a scenario is not impossible, it is likely improbable. If LNT maintains a lower DGR, that is a DGR below 7%, than the benchmark stock would return more money over the long term.

Since LNT would need to maintain the optimistic DGR to at least match the benchmark stock with respect to cash return, I don't think LNT would make a sound investment at the current price and yield. There is simply no margin of safety should the DGR be lower.

At the current price and yield, I think LNT would be a risky dividend investment.


As a mentioned in my analysis of Wisconsin Energy Corporation (WEC), I recently read that Warren Buffett could be interested in buying a utility. Two companies were mentioned: WEC and LNT.

After reviewing LNT, I think the stock is simply too risky at the current price and yield as a dividend investment. The yield is nice and the estimated dividend growth rate is reasonable. However, according to my calculations, the stock is simply too expensive given the future dividend prospects.

As a dividend investor, I want to pay a fair price for the dividends I will receive. If the price is too high, I simply pass.

Final recommendation: I don't think you should buy LNT at the current price.

Full Disclosure

I don't currently own shares of LNT.

I don't intend to initiate a position in LNT within the next 72 hours.