Otis Redding sang about sitting on the dock of the bay. He sang about watching the tide roll away. You remember the song……

Look like nothing’s gonna change

Everything still remains the same

I can’t do what ten people tell me to do

So I guess I’ll remain the same, yes

That is how I feel as an income investor. I watch a frenzy build about this thing or that. It dies away and the herd moves onto something completely new. The experts that pontificate on what you should do at each twist and turn of the market offer new advice confident that nobody will call them on it.

But here I sit. Watching the dividends rolling in.

My objective is to create a growing stream of passive income. That is what this list of picks represents. And this isn’t an academic exercise for me. I own 11 out of 12 of these picks. The only exception is Soul Patts which is on my watchlist. Despite everything going on in the world I’m focused on me and what I’m trying to accomplish. My strategy requires patience and consistency.

This update comes fifteen months since I made my picks. And I’m pleased with how things have gone. I can make that statement definitively as I set a very specific goal. A good place to start the update is a reminder of what I’m trying to accomplish with these 12 picks.

My original premise

I had two long-term goals for the shares and ETFs I included on my list on June 20th 2024. For the more growth orientated bucket I wanted to achieve average income growth of 10% per year. For the higher yielding shares I was targeted average income growth of 8% annually.

In both cases this income growth comes from a combination of dividend reinvestment and dividend growth. In providing this update I used the following assumptions to calculate the results:

  • Equal weighted portfolio: I assumed that each of the 12 picks received an equal allocation of $10,000. For the US holdings I used the exchange rate on the 20th of June which makes a $10,000 local investment $6,654 US. I am going to assume no rebalancing so the equal weighted portfolio is only a day one exercise and the weights will fluctuate over time.
  • Dividend reinvestment: I am assuming that dividends are reinvested at the closing price on the day of the dividend payment. This may vary slightly from how a broker processes any automatic reinvestments or how an investor might manually reinvest dividends. In all but the most extreme situations the price will not vary significantly under these scenarios from my approach.
  • Income on 20th of June: This represents the dividends and distributions in the preceding 12 months on the 20th of June multiplied by the number of shares held on the 20th of June.
  • Income on the 1st of July: This represents the dividends in the proceeding 12 months on the 1st of July multiplied by the number of shares held on the 1st of July.

In the following chart you can see the results of this exercise.

Income picks

Over these fifteen months the picks have achieved 13.39% income growth in constant currency terms and 13% in Aussie dollar terms. So far so good.

Currency matters and there will always be fluctuations. However, since this is a long-term portfolio I’m more interested in what is happening in constant currency terms. I included companies that I thought would grow their dividends. The constant currency view answers this question.

How are individual picks performing?

Aurizon continues to be the outlier. The dividend continues to drift downward which is frustrating. The most recent dividend declared in August was 10% lower than the same dividend payment a year ago. This is roughly in line with earnings dropping 14% for fiscal 2025.

There are some positives. Our analyst Adrian Atkins expects earnings to grow 9% next year. He also expects growth investment to drop off which should free up cash flow. Given the strong financial strength of Aurizon Atkins expects cash flow to be directed to buybacks and generous dividends.

Lets hope next year goes better than this one for Aurizon.

How did the portfolio perform?

I’m an income investor. But that doesn’t mean I don’t want my portfolio to increase in value. I don’t think those goals are mutually exclusive.

Income two

The performance of the portfolio took a step back this quarter as it dropped 6.32%. It is up 15.82% in the 15 months. This compares unfavourably to the S&P 500 wich is up 22.80% in Aussie dollar terms and about even with the ASX 200 which is up 14.46%.

What happened this quarter? Well for one thing CSL (ASX: CSL) happened. The shares are down 13.98% over the last three months. I’ve shared my view on CSL previously.

Global liquor giant Diageo (NYS: DEO) has also had a rough run with the shares down 8.30%. I drink Guiness after Guiness and the shares still go down. Most liquor giants are having a difficult time. I still love their brands and the cost advantages from their scale. I’m confident that Mr. Market will come around from the current pessimism.

American Tower (NYS: AMT) has also had a tough three months with shares down 14.21% with much of the damage done in a two-week period in early September. Our analyst is calling it an overreaction and with the shares yielding 3.50% and undervalued I’m thinking about personally picking up some more.

Have any questions or comments? Write me at [email protected]

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