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My ASX stock portfolio focuses on investments that I believe can provide passive income and increase wealth. I will tell you about one of his in my portfolio – Duxton Water Limited (ASX: D2O).
Companies that grow their underlying value can offer investors attractive returns, including increased earnings, cash flow and asset value.
What does Duxton Water do?
One of the niche areas in the Australian property market is permanent water rights.
Australia has a sophisticated water trading system that allows farmers and other businesses to trade safe and common water rights.
Most of Duxton Water’s water rights are safe water rights. So Duxton Water should be able to get these rights even when the rain is low.
The ASX shares aim to generate profits by offering irrigators a wide range of supply solutions, including “long term leases, forward allotment agreements and spot allotment supplies”.
How do ASX shares benefit shareholders?
By leasing water rights, the company generates cash flow that it uses to pay increasing dividends to its investors.
The company paid a half-year dividend of 2.3 cents in 2017 and has increased the dividend by 0.1 cents per share each year since. Six months later he increased to 2.4 cents per share, and six months after that he increased to 2.5 cents per share. His most recent passive income payment was 3.4 cents per share in April 2023.
ASX stock expects three more increases in the next three earnings results, with passive dividend income expected to reach 3.7 cents per share by the end of FY24.
Food price inflation helps support rising water rights prices. Duxton Water says it is also growing more high-value crops, such as almonds, which require more water than other types of crops.
Since launching several years ago, Duxton Water’s portfolio has averaged a 13% return to December 31, 2022 on a net asset value (NAV) basis. This long-term performance level is enough for the company to pay out a growing full-rate dividend, and the underlying NAV has continued to rise over the years, boosting the underlying value of ASX stock.
Can ASX shares maintain performance?
After-tax NAV was $1.82 at the end of April 2023, giving Duxton Water shares a 6% discount. The pre-tax price is $2.09, an 18% discount to the stock price. It looks good to me. Trading at a discount increases your chances of passive income.
Management said the weather forecast was “expected to continue to be drier than normal in the coming months, with the Japan Meteorological Agency maintaining a 50% chance of El Niño, and a positive Indian Ocean Dipole later this year. It is highly likely that modes will form.” Both of these “generally cause below-average rainfall in the eastern half of Australia”.
The company believes that next year’s quota demand will be strong, partly due to the high probability of planting annual crops next season.
I believe that the value of water (and unearned income) could continue to rise in the long term as demand for food increases with population growth in Australia and around the world.