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Maintain control for better income prospects

The following is a tweak on what we might label ‘the dividend dilemma’; although perhaps ‘dilemma’ should be in the plural since dividends pose plenty of problems for equity investors. The details concern the Bearbull Income Fund – in particular, its holding in diversified miner Anglo American (AAL) – although the dilemma is generic for those using their equity portfolio for income.

The miner’s shares have been on quite a roll since last autumn, but especially since January when investors decided that mining companies would be in the cavalry charge leading the global economy out of its Covid funk. Between late January and early March, Anglo American’s share price rose 25 per cent to top £30, helped by encouraging results for 2020 announced in late February.

I don’t want to overstate Bearbull’s prescience, but it did seem that the price had got ahead of itself (see Bearbull, 26 February 2021), so some correction was due. That made a case either for tightening the stop-loss level on the fund’s holding (reducing the amount by which the share price could fall before I sold the holding) or for ‘top slicing’ (locking in some profit by selling part of the holding).

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