Converting applications to DMG for external hard drive

You aren't converting them. What you are doing is packaging them. This can be done in disk utility. You create a new dmg file, then you drag new files to it. You can then drag the dmg file off to your external drive and when you double click it, it will mount and if you have the preference for mounted drives to show up on your desktop, it will show up on your desktop.

I suggest the whole dmg thing is an extra step you don't need. An app is already a package with files and folders inside so putting it inside a dmg file reminds me of buying a suitcase to put your macbook pro case into or riding around inside a car that is inside a truck. (Gratuitous Bond move reference.)

You might consider copying the app files to an apps folder on the external drive. Then move them to trash. CAUTION! Try running them from the external drive to make sure they still work before you empty the trash!

You can then add the external drive apps folder to spotlight indexing to have the apps available in only a few keystrokes. You can also create a shortcut to the external drive apps folder on your desktop if you prefer launching things by clicking rather than typing.