It has been a year and a half since I made these picks and I’ve been providing a quarterly update ever since. This list is reflective of my investment objective which is to create a growing stream of passive income.

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.

A passive income strategy requires patience and consistency. I’ve owned several of the names on this list for decades. My original purchase date for ADP is 1981, Diageo 2008, Phillip Morris 2009, Kinder Morgan 2010 and Brookfield Infrastructure in 2014. Find shares that consistently increase their dividends and reinvest those dividends for decades and your passive income can skyrocket.

Before getting into the update a quick 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 targeting 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 2024 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 2026: 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 January 2026: This represents the dividends in the proceeding 12 months on the 1st of January multiplied by the number of shares held on the 1st of January.

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

Income update

Over these eighteen months the picks have achieved 14.88% income growth in constant currency terms and 13.77% 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.

It was a relatively quiet quarter from a dividend perspective as Australian companies didn’t report. A nice 10% increase in the quarterly dividend from ADP which is 51st consecutive year of dividend increases. There should be more action coming in the first quarter of 2026.

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.

Returns

Performance was not great over the quarter. Both the Australian and US market ended about flat for the quarter but four of the picks had poor performance over the last three months – CSL (-16%), American Towner (-9%), ADP (-7%) and Diageo (-7%). All of these shares are now undervalued according to our analysts.

Since inception the two biggest losers have been CSL and Diageo. CSL is a mess and management has clearly lost the confidence of shareholders. While our analyst expects margins to improve I expect this to be a longer-term turnaround as building support from burned investors will take time.

Diageo is caught up in a challenging environment as drinking rates are declining. However, I think investors are overly pessimistic and have written in detail about what is going on with alcoholic beverage industry.

Have any questions or comments? Write me at mark.lamonica1@morningstar.com

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