Smaller stocks, including mid-caps, are often associated with growth, not income. However, some exchange traded funds offer investors avenues to mid-cap income, including the ProShares S&P MidCap 400 Dividend Aristocrats ETF (CBOE: REGL).
REGL provides access to quality dividend growers in the mid-cap category. REGL tracks a mid-cap Dividend Aristocrats Index, which requires 15 consecutive years of increased dividends for inclusion. This ProShares fund is the only ETF to focus on members of the S&P MidCap 400 Index that have boosted payouts for at least 15 years.
Mid-cap companies are slightly more diversified than their small-cap peers, which allows many mid-sized companies to generate more consistent revenue and cash flow and provide more stable stock prices. Additionally, they are not so big that their size would slow down growth.
The mid-caps segment has also outperformed their large-cap peers, but with lower volatility than small caps. Moreover, the returns of mid-cap stocks have also beaten those of small-cap stocks during the trailing three-, five-, and 10-year periods, with lower volatility.
REGL holds 44 stocks with a weighted average market value of $5.62 billion, according to issuer data. The ETF celebrates its third anniversary in February, an important milestone because many investors look to evaluate a fund’s three-year track record before investing.
“Companies that consistently grow their dividends tend to be high quality with long histories of profit and growth, strong fundamentals and stable earnings, and management teams with conviction. These features have generally enabled dividend growers to withstand repeated market turmoil and still deliver strong returns with lower volatility,” according to ProShares.
For example, the S&P MidCap 400 Dividend Aristocrats Index refines the mid-cap sweet spot by screening the benchmark S&P MidCap 400 for high-quality companies with at least 15 consecutive years of dividend growth and caps each sector at a maximum 30% to limit overexposure and equally weights holdings to ensure even greater diversification. Only 12% of the larger S&P mid-cap universe makes the cut and is included in the resulting portfolio of mid-cap dividend aristocrats.
REGL allocates nearly 30% of its weight to financial services stocks while the utilities and industrial sectors combine for over a third of the ETF’s weight.
REGL’s underlying index has a dividend yield of nearly 2.2%. The ETF’s annual fee is 0.4%, or $40 on a $10,000 investment.
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