A recent article by SA contributor Mr. Nelson Smith caught our attention and perhaps the attention of a lot of Dividend Growth Investors [DGI] on Seeking Alpha. The comments section in that article is an evidence of it. Mr. Smith's main argument is that investors might be over paying for dividend growth giants like Coca-Cola (KO), McDonald's (MCD), Johnson & Johnson (JNJ) and that dividend growth investors should look beyond these well known names. Sure, there is nothing wrong with diversification but why would so many investors stick with these companies through good times and bad? We present a few reasons below, with all due respect to Mr. Smith and his article. Let us get into the details.

Portfolio Volatility: One of the main reasons dividend growth investors tend to stick with a few well known companies is the steadiness that these companies offer. Sure, one can always look back at periods like 2009 and say no company is safe. But you need to have your money invested somewhere (unless you want to play the riskier game of timing the market each time). Reliability: Hang on a minute before you dismiss this as being the same as the last point about volatility. This reliability factor is about these companies and their dividend growth streaks. Staples: Mr. Smith also pointed that Staples like Coke, McDonald's and Altria (MO) are heavily favored by dividend growth investors. Diversification: Who says there cannot be a diversified portfolio of dividend growth stocks? Dangers of High Yield: Buying the highest yielding stock might look like a no brainer.

Source: Seeking Alpha

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