Investors remain positive – or perhaps complacent - despite continued geo-political uncertainty and another tariff negotiation deadline on July 9th. It isn’t always easy but I’m trying to keep my head down and focus more on my long-term goals than the headlines.

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 just over a year since I made my picks. And I’m pleased with how things have gone. The end of financial year is a time when many investors reflect on how things are going. To make this a useful exercise your review should focus on what you are trying to accomplish. That is why I’m starting with my goal for 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

I’m pleased so far. Crossing the one-year milestone means we can compare the annual performance with my goal of achieving overall income growth of 9.16% (10% for 7 growth picks and 8% for 5 high dividend picks).

For the year the picks achieved 10.50% income growth in constant currency terms and 10.95% in Aussie dollar terms. Not too shabby.

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?

There are two primary laggards. The first is Aurizon with negative income growth. Obviously not ideal. Aurizon is dealing with two primary issues right now. Lower volumes on the Queensland rail network, which has been hampered by wet weather, and an increase in bad debts following bankruptcy of noncoal bulk customers.

Our Senior Equity Analyst Adrian Atkins believes both issues are temporary. Nothing about my thesis has changed so I’m sticking with Aurizon.

The other outlier is American Tower although in this case income grew by 3.66%. This is not unexpected as the focus during 2024 was paying down debt. I fully expected dividend growth to accelerate as debt levels are lower.

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 picks two

Overall the performance of the picks has been strong as the return of 20.68% exceeds the S&P 500 which was up 16.85% in Aussie dollar terms and the ASX 200 which was up 10.39% over the same time frame.

The overall return was dragged upwards by the performance of Phillip Morris which can happen with a relatively concentrated portfolio. I’m not reading too much into the performance as my primary goal is to grow passive income and one year is still relatively short time period.

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

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