OLTB wrote:As mining is a ‘known’ cyclical industry, would experienced HYPers recommend topping up even if dividends fall/cease to take advantage of lower prices for when the better times churn out the dividends. Perhaps this might be a better strategy for those of us building HYPs rather than those relying on income from HYPs?
Yes and no - it depends who I was making the recommendation to.
The "no" side first: I would not recommend it to the prototypical HYPer: the investor who just wants their portfolio to generate a sustainable and hopefully growable income with pretty minimal work on their part, but who wants the sort of control over what they're invested in that a portfolio of individual shares gives. Note it doesn't matter to me why
they want those things: they could want the income for living expenses now, or because they believe reinvesting a good dividend income is the best way to get good, reliable growth of their pot, or for other reasons. And they could want the control over the portfolio because they don't trust the financial professionals not to find ways to skim off all the extra returns the make and a bit more in hidden and not-so-hidden fees, or because they have particular objections to and likings for some industries that they're going to find hard to replicate in a fund - for instance, someone might object strongly to holding defence shares but positively want to hold tobacco shares, or again for all sorts of other reasons.
And the "yes" side is that if a HYPer fancies something a bit more adventurous and challenging in the way of investing in individual shares, I don't think it's all that bad a thing to try. It can be very successful if you get it right - for example, an investment in BHP Billiton when it announced its severely cut interim in February 2016 would have about 3-3.5 bagged by now. Earlier in 2016 would have been even better, but the window of really
good opportunities wasn't all that long. And there's no obvious relationship between that window and when the dividend cut occurs: for instance, there were some pretty good opportunities for Lloyds, but they occurred for about a year spanning the 2011/2012 boundary, around 2.5-3 years after the dividend was cancelled in February 2009. And of course, in some cases that window never materialises at all, Carillion being the obvious example.
So basically to get it right you have to get both the share and the timing right, and that ain't easy! I won't say it's impossible to do systematically (though many would), but I certainly don't know that it's possible, other than by pure luck.
So if you fancy the idea, try it and see how you go. But I most certainly don't guarantee success, and so would strongly suggest keeping strict control over it. Most especially, don't be too tempted by the "it's still going down; oh well, I must have piled in too early, but never mind, it still looks good, so I'll pile in some more" trap - that's a recipe for really bad losses or tying up a lot of money unproductively for a very long time when you encounter a Cariillion or an RBS... Basically, have a maximum limit on how much you'll put into any single holding and don't
go over it.
And avoid thinking of it as part of your HYP strategy, or at the very least posting on the HYP Practical board as though it were. It quite simply won't be one by the HYP Practical board's standards. It would be a Recovery strategy with a high-yield (though not necessarily currently
high-yield) component to how it picks the shares it invests in.