Minding Mid-Cap Stocks And ETFs For Dividends

Mid-cap stocks and exchange traded funds, often overlooked asset classes, are commanding some attention this year. For investors, this is a win because it prompts to explore a high potential segment of the equity market that can serve as a core position in long-term portfolios.

Dividend investors shouldn't ignore mid caps, either. In fact, some ETFs are dedicated to to mid-cap dividend concept, including the ProShares S&P MidCap 400 Dividend Aristocrats ETF REGL. REGL, which debuted in February 2015, is one of the established names in a blossoming lineup of ProShares dividend growth ETFs.

The fund follows the S&P MidCap 400 Dividend Aristocrats Index, the dividend offshoot of the widely followed S&P MidCap 400. That index has one of the stricter requirements of any mid-cap benchmark: a minimum of 15 straight years of increased payouts.

Why It's Important

Long-term data underscore the importance of owning mid caps and how the group may be a better alternative to augmenting large-cap exposure than small-cap equities.

“For those who have left mid caps out of their portfolios, it’s a missed opportunity,” ProShares said in a recent note. “Since its launch on July 1, 1991, the S&P MidCap 400 has returned 11.8%, outperforming both the S&P 500 and the Russell 2000, which have returned 9.8% and 9.5% respectively.”

REGL's dividend emphasis is a plus for investors looking to reduce volatility. Over the past three years, the ETF has sported lower annualized volatility than the S&P MidCap 400, the S&P 500 and the small-cap Russell 2000. The fourth-quarter swoon of 2018 was a testament to REGL's volatility-reducing capability.

“In that Q4 sell-off, the S&P MidCap 400 Dividend Aristocrats fell only 8.5%—less than large-cap stocks,” said ProShares.

What's Next

REGL yields 1.86%, or 50 basis points above the S&P MidCap 400. Home to 51 stocks, the ProShares ETF devotes more than 45% of its combined weight to the financial services and industrial sectors. REGL components have some other benefits, too.

“The S&P 400 Dividend Aristocrats have higher gross margins, net margins, return on assets and return on equity than the overall S&P 400,” ProShares said. “And, hot off the presses, with more than two-thirds of companies reporting Q3 2019 earnings as of November 1, 2019, the S&P 400 Dividend Aristocrats have generated 3% earnings growth.”

Related Links:

Stringent New Dividend ETFs Could Benefit Investors

These New ETFs Are Exciting