I have always counselled against reinvesting dividends automatically in the originating share, the reason being that this may not be the optimum choice at the time for the cash. My advice is to accumulate the dividends and then reinvest this cash when economic to do so having regard to costs, in what is at that stage the most attractive sector/share in your HYP. As you say, my suggested way of doing this was described in TDL of 05 June and on many previous occasions too. Essentially it’s a combination of the most currrently undervalued sector/share with the most attractive yield where still a Buy in the latest TDL.
There is one minor exception I’d make to this method of dealing with reinvesting dividends, which is where an investor has a very small HYP. In that case the dividends will also be small and it might take a very long time, maybe several years, to accumulate an economically sufficient amount of cash for reinvestment. In such a case, I’d probably relax the above method and just go for auto reinvestment even though it is not ideal.
All this applies to topping-up existing sectors. If though you wish to add a completely new sector, perhaps for example by a mix of accumulated dividends plus new money or maybe the proceeds of a cash bid for a share taken out, the amount to invest in it is your then current sector average value but no more.
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