Small Stocks, Big Dividends in This ETF

Much has been made of the recent divergence of U.S. small-caps from their large-cap counterparts. It is easy to see why. Year-to-date, the iShares Russell 2000 ETF (NYSEArca: IWM), the biggest small-cap ETF by assets, is clinging to a small gain while the S&P 500 has been a solid performer.

Small-cap stocks are usually prized for growth possibilities, not income-generating potential. However, more and more smaller stocks are rewarding shareholders with dividends and that theme is accessible via several exchange traded funds, including the ProShares Russell 2000 Dividend Growers ETF (BATS: SMDV).

The ProShares Russell 2000 Dividend Growers ETF, 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. Index constituents are screened for liquidity and dividend status, then selected and equal weighted subject to a maximum sector weight of 30%.

The Russell 2000 Dividend Growers Index includes quality, dividend-growing small-cap companies that delivered higher return on equity compared to other small-caps, and these quality dividend payers did so without sacrificing earnings per share growth.