A Closer Look at the Dividend Growth ETF Strategy

The dividend growth exchange traded fund strategy has helped investors capture the upside potential of a strengthening equities market through quality company exposure.

ETF Trends publisher Tom Lydon spoke with Simeon Hyman, Head of Investment Strategy at ProShares, at the Inside ETFs conference that ran Jan. 22-25, 2017. They talked about ProShares’ dividend growth strategies, notably its popular ProShares S&P 500 Aristocrats ETF (BATS: NOBL), which tracks the S&P 500 Dividend Aristocrats Index of companies that have consecutively raised dividends for at least 25 years.

Nevertheless, investors are not limited to large-cap dividend payers from the S&P 500.

“The dividend growth strategy works very effectively in mid- and small-cap stocks as well,” Hyman said.

For example, ProShares also offers the ProShares Russell 2000 Dividend Growers ETF (BATS: SMDV) and the ProShares S&P MidCap 400 Dividend Aristocrats ETF (BATS: REGL).

Like, NOBL, REGL tracks a Dividend Aristocrats Index. The mid-cap Dividend Aristocrats Index, though, only requires 15 consecutive years of increased dividends for inclusion.

SMDV, a dividend spin on the Russell 2000, the benchmark U.S. small-cap index, tracks the Russell 2000 Dividend Growth Index. That index includes small-cap firms with dividend increase streaks of at least a decade.

REGL and SMDVs portfolios are constructed much like NOBL’s, with the companies that pass the dividend growth screen equally weighted subject to a maximum sector weight of 30%.

While smaller company stocks had lagged their larger counterparts coming out of the financial crisis, 2016 saw strong small-cap stock performance.

“They are coming back,” Hyman said. “Of course they should be part of an evergreen asset allocation, but in the near-term, folks are talking about Trump-onomics.