The stocks that comprised the original Australian Edge Portfolio—our “Eight Income Wonders from Down Under”–generated an average total return in US dollar terms of 34.61 percent from Sept. 26, 2011, through Sept. 25, 2012.

The S&P/Australian Securities Exchange 200 Index was up 29.46 percent for the year. The S&P 500 Index, meanwhile, posted a total return of 27.08 percent and the MSCI World Index grew by 23.26 percent.

The S&P/ASX 200 actually started from its 12-month low point of 3,863.900 on Sept. 26, 2011. The index hit a closing high of 4435.907 on May 2, 2012. From that level it sank to 3,985.025 on Jun. 4 but rallied during the summer and closed Tuesday in Sydney at 4372.863.

The Australian dollar appreciated 5.61 percent versus the US dollar from Sept. 26, 2011, through Sept. 25, 2012. The currency closed at USD0.9833 the day AE launched and rested at USD1.0385 at the close on Sept. 25, 2012. The aussie hit a low of USD0.9527 just a week after AE made its debut. Its high since Sept. 26, 2011, is USD1.0809, established Feb. 7, 2012.

Pipeline owner/operator and Conservative Holding Envestra Ltd (ASX: ENV, OTC: EVSRF) has been the best performer among the Eight Income Wonders, posting a total return–which is capital gain or loss plus dividends–of 61.19 percent in US dollar terms from Sept. 26, 2011, through Sept. 25, 2012.

Envestra closed at AUD0.64 per share on the Australian Securities Exchange on Sept. 26, 2011. It peaked earlier this month at AUD0.94 per share and settled at AUD0.89 on Sept. 25. Since we’ve owned it the board has approved and management has declared two dividend payments totaling AUD0.058 per share.

The stock currently yields 6.52 percent but is trading well above our recommended buy-under target. The next dividend will be declared in mid-February 2013, when management reports results for the first half of fiscal 2013. We’re hesitant to boost our buy-under target until the company raises its dividend or indicates its intent to do so.

Among the three Aggressive Holdings we included in the original Portfolio, GrainCorp Ltd (ASX: GNC, OTC: GRCLF) has been the standout, generating a total return in US dollar terms of 52.16 percent from Sept. 26, 2011, through Sept. 25, 2012.

We basically bottom-picked GrainCorp, as the stock’s 12-month low for the relevant period, like that for the S&P/ASX 200, was established Sept. 26, 2011, at AUD6.82. GrainCorp hit a closing peak of AUD9.86 on Aug. 17, 2012, in Sydney and settled at AUD8.94 on Sept. 25. This dip since August has brought the stock back to within buying range, and it’s currently yielding more than 7 percent.

GrainCorp has declared and paid AUD0.64 per share in total dividends, including AUD0.35 in special dividends, since we included it among our eight best dividend plays Down Under. The company has declared four special dividends since November 2010. The company will report fiscal 2012 final results on Nov. 14, 2012, at which time it will declare its next set of dividends.

GrainCorp’s fellow original Aggressive Holdings BHP Billiton Ltd (ASX: BHP, NYSE: BHP) and New Hope Corp Ltd (ASX: NHC, OTC: NHPEF) are the only members of our Eight Income Wonders not to have posted double-digit total returns in US dollar terms since AE’s founding issue.

BHP Billiton is up 8.16 percent, having rallied off a mid-summer low of AUD30.18 in Sydney on Jul. 18, 2012, to AUD33.25 as of Sept. 25. It had closed as high as AUD38.69 on its home exchange on Oct. 28, 2011, but only recently snapped out of a downtrend that coincided with rising fear of a new financial crisis and global economic swoon brought on by debilitating debt burdens four countries on the “periphery” of the eurozone.

New Hope, meanwhile, soared from AUD5.02 in Sydney on Sept. 26, 2011, to a closing high of AUD6.54 on Oct. 17, 2011, as a management-instigated auction of the company gripped investors’ attention. We were impressed by New Hope’s business of exporting thermal coal to power-hungry Asian countries such as India and its debt-free balance sheet when we included it among the Eight Income Wonders.

Upon reflection we should have capitalized on this initial mania and booked an early 30 percent-plus gain. But we don’t feel “stuck” with this one, as the share price has rallied from a post-aborted auction low of AUD3.83 on Jul. 13, 2012, in Sydney to close at AUD4.53 on Sept. 25.

New Hope has also paid AUD0.11 per share in “regular” interim and final dividends, and it also declared a special dividend of AUD0.20 per share when it reported fiscal 2012 final results on Sept. 18. The AUD0.05 final and AUD0.20 special dividend will be paid Nov. 6, 2012, to shareholders of record as of Oct. 24, 2012. New Hope shares will trade ex-dividend on the ASX as of Oct. 18, 2012.

We’ve made a total of additions to the Portfolio from October 2011 through August 2012, including seven Conservative Holdings and eight Aggressive Holdings. Two Aggressive additions haven’t worked out, mineral sands producer Iluka Resources Ltd (ASX: ILU, OTC: ILKAF, ADR: ILKAY) and magnetite producer Grange Resources Ltd (ASX: GRR, OTC: GRRLF).

We dumped Iluka, which we had added in the March 2012 issue, in July for a 48.84 percent loss. We had replaced it with Grange, which generated a loss of 38.79 percent in less than two months before we opted out via an Aug. 31, 2012, Flash Alert published in the wake of the company’s disappointing first-half 2012 earnings results.

Iluka management had issued drastically revised production guidance on two separate occasions within months of providing its initial 2012 forecast in February. The company continues to see the dramatically stepped up pricing for its zircon and rutile output, which is used in the production of pigments for paint and ceramic tiles, respectively, and its interim dividend for 2012 was 25 percent higher than that for 2011.

We were unsettled, however, by management’s inability to accurately gauge what’s going on in its primary markets and opted out after its second guidance revision and subsequent selloff. We compounded this mistake by substituting what is essentially another “pure play” in magnetite producer Grange Resources.

Shortly after we added Grange the company announced, on Jul. 20, that Managing Director Russell Clark was resigning for “personal reasons.” This out-of-nowhere revelation preceded results for the six months ended Jun. 30, 2012, that were decidedly underwhelming, as Grange’s premium for its high-quality magnetite compared to less grades of iron ore had shrunk. It also reduced its interim dividend from AUD0.02 per share in 2011 to AUD0.01.

It’s our intent to cut losses as soon as we see deterioration of underlying businesses, and that’s what we’ve done in these two instances.

Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY), whose long-term growth prospects are buoyed by the increasingly promising Papua New Guinea LNG project, is our biggest winner among Aggressive Holding additions with a total return of 15.66 percent since January 2012. Oil Search has outperformed the S&P/ASX 200 (11.27 percent), the S&P 500 (13.56 percent) and the MSCI World Index (13 percent) since we recommended it.

On positive notes, we’ve enjoyed significant gains in US dollar terms for several non-Eight Income Wonders, including specialty biopharmaceutical company CSL Ltd (ASX: CSL, OTC: CMHXF, ADR: CMXHY) and infrastructure engineering consultancy Cardno Ltd (ASX: CDD, OTC: COLDF).

CSL has generated a total return of 51.31 percent since we added it to the Conservative Holdings on Oct. 14, 2011, besting the S&P/ASX 200 (12.21 percent), the S&P 500 (20.22 percent) and the MSCI World Index (15.05 percent). Cardno, meanwhile, is up 48.47 percent since Nov. 11, 2011, versus 8.94 percent for the S&P/ASX 200, 16.3 percent for the S&P 500 and 13 percent for the MSCI World Index.

All told our seven additions to the Conservative Holdings, all of which remain part of the Portfolio, have posted average gains of 23.59 percent.

The Roundup

AE Portfolio Conservative Holding Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY) is, notoriously, sitting on what’s perceived to be an AUD11 billion war chest, and what could actually amount to AUD30 billion over the life of the transition, the result of its deal to surrender its copper-wire monopoly for the benefit of Australia’s National Broadband Network (NBN) as a nationwide fiber network is constructed.

But the company is holding off on dividend increases, special payouts and share buybacks in favor of investing in its infrastructure and adding assets that will build wealth for the long term. That, at least, is what management wants shareholders to believe.

The stock closed at a post-Sept. 26, 2011, high of AUD4.07 on the Australian Securities Exchange (ASX) on Aug. 6, 2012, just before management revealed fiscal 2012 operating and financial results.

Those results were solid if unspectacular, but even though management had repeatedly stated in public that its priority was preserving its dominant position by reinvesting in its network and adding features and services to boost average revenue per user the market reacted negatively to Telstra’s failure to reveal some sort of new “capital management” strategy.

The stock sank to AUD3.70 over the next two weeks of trading, as disappointment over no new dividends or buybacks dominated investors’ psyches. The shares are back to AUD3.87 as of this writing, as the reality of Telstra’s unassailable position in the domestic wireless market and its cash-generating potential settles back in front of investors’ minds.

Telstra has announced several small acquisitions in recent months that will boost its offerings for so-called cloud computing, which is included in Network Services in the organizational structure. These deals will help it to develop applications and solutions in-house for its growing roster of network services clients. This segment generated the highest revenue growth for the company in fiscal 2012, and it remains a priority going forward.

The company continues to leverage existing relationships with large Australia-based enterprises and government entities, and part of its Asian expansion is based on “following” Australian businesses as their operations expand into greater Asia.

Telstra’s ability to invest in its infrastructure on a scale domestic competitors simply can’t match will help it win business of large enterprises that want a solution that includes hosted networks and applications. And more and more companies–as they attempt to cut costs–will follow this route.

Telstra this month announced it was boosting the amount of money it will spend upgrading and expanding its 4G wireless network to AUD1.2 billion from AUD700 million to AUD800 million it had been spending on CAPEX over the past several fiscal years. The company aims to cover about 66 percent of the Australian population by mid-2013, up from about 40 percent at present.

Management, during a series of presentations to retail investors over the past week, also alluded to expansion plans in Asia to compete with Vodafone Group Plc (London: VOD, NYSE: VOD) and Singapore Telecom Ltd (Singapore: SP, ASX: SGT, OTC: SNGNF, ADR: SGAPY) . Telstra added about 475,000 customers at its Hong Kong-based CSL wireless business and also owns significant telecom infrastructure connecting Australia to Asian countries and fixed lines interconnecting Asia as well.

As Australia continues to roll out the National Broadband Network Telstra’s considerable suite of media content will also continue to generate solid growth. In this segment Telstra doesn’t care how the customer accesses the network because the customer will be accessing Telstra content. At the same time, its 4G network will make the user experience much better for customers demanding more and more services, accessing networks in more and more ways. 4G is all about spped and reliability, and Telstra is the king in Australia.

One area management continues to focus on is customer service. Part of their efforts–the major part, in fact–is on providing the fastest, most reliable network in Australia. Another part is streamlining the actual customer contact experience so users stick with Telstra and actually become advocates on its behalf. This is a big leap. But customer attraction and retention is probably the most important factor for a 21st century telecom.

Telstra has added 3.3 million customers over the past two fiscal years, in a population of 28 million “sim cards.” (Australia’s actual population is 22 million, but some people have more than one mobile device connected to a network.) This is impressive growth. Better performance at the customer service level, in management’s view, will also drive better performance at the financial level…and that will translate, eventually, into dividend growth.

Telstra is a strong buy on dips to USD3.50 on the Australian Securities Exchange (ASX) using the symbol TLS or on the US over-the-counter (OTC) market using the symbol TTRAF. Telstra also trades as an American Depositary Receipt (ADR) on the US OTC market under the symbol TLSYY. Telstra’s ADR, which is worth five ordinary ASX-listed shares, is a buy under USD17.50.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Aug. 27 Flash Alert
• APA Group (ASX: APA, OTC: APAJF)–Aug. 24 Down Under Digest
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–Jul. 27 Down Under Digest
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 5, 2012 (estimate, FY 2012, end Sept. 30, 2012)
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Sept. 11 Down Under Digest
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Aug. 27 Flash Alert
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Aug. 27 Flash Alert
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Sept. 11 Down Under Digest
• Ramsay Health Care Ltd (ASX: RHC, OTC: RMSUF)–September Sector Spotlight
• SMS Management & Technology Ltd (ASX: SMX, OTC: SMSUF)–August Sector Spotlight
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Aug. 10 Down Under Digest
• Transurban Group (ASX: TCL, OTC: TRAUF)–Aug. 10 Down Under Digest

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Aug. 27 Flash Alert
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 23 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 14, 2012 (estimated, FY 2012, end Sept. 30, 2012)
• Grange Resources Ltd (ASX: GRR, OTC: GRLLF)–Aug. 31 Down Under Digest
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Aug. 27 Flash Alert
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Sept. 11 Down Under Digest
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Sept. 18 Down Under Digest
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Sept. 11 Down Under Digest
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Aug. 27 Flash Alert
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Aug. 10 Down Under Digest
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–Sept. 11 Down Under Digest