Bottom Line: Even with an 18.8% return over the past five years, the WisdomTree MidCap Earnings Index actually saw such strong dividend growth that the price-to-dividend ratio decreased at a rate of 2.5% per year over the same period.6
The Remarkable Dividend Growth Trend of U.S. Mid-Caps
• WT MidCap Earnings Index Growing Dividends at 20% per Year: This is the classic case of an index where the returns have been strong, but the dividend growth has been stronger. The result? The price-to-dividend ratio actually decreased over the past one-, three- and five-year periods.
• Mid-Cap Dividend Growth Outpaces S&P 500 Dividend Growth: Each of the mid-cap indexes shown had dividend growth faster than that of the S&P 500 Index over the past one-, three- and five-year periods. Large-cap and small-cap equities certainly get significant attention, but the strong levels of dividend growth are one reason we think mid-caps can also be exciting.
Follow the Fundamentals
The WisdomTree MidCap Earnings Index takes an approach that emphasizes following the fundamentals, as every constituent must prove its profitability at each annual Index screening. While the Index doesn’t require every constituent to be a dividend payer, the dividend growth that it has displayed over its performance history has been impressive.
1Source: Bloomberg, for five-year period ending 2/28/15.
2Source for all bullets: Bloomberg, for five-year period ending 2/28/15.
3WisdomTree MidCap Earnings Index standardized average annual returns as of 2/28/15: one-year return: 10.2%; three-year return: 18.4%; since-inception return: 10.5%. Inception date: 2/1/07.
4S&P MidCap 400 Index standardized average annual returns as of 2/28/15: one-year return: 11.1%; three-year return: 17.2%; since WT MidCap Earnings Index inception return: 9.2%.
5Russell Midcap Index standardized average annual returns as of 2/28/15: one-year return: 13.3%; three-year return: 18.9%; since WT MidCap Earnings Index inception return: 8.5%.
6Source: Bloomberg, for five-year period ending 2/28/15.