Fund and stock ratings aren’t the end-all and be all of the investment, but they provide a foundation for investors examining specific ideas. Of course, ratings mean there are winners and losers. In the winners among ETFs is the ProShares Russell 2000 Dividend Growers ETF (SMDV).
SMDV, a dividend spin on the Russell 2000, the benchmark U.S. small-cap index, tracks the Russell 2000 Dividend Growth Index, which includes small-cap firms with dividend increase streaks of at least a decade.
Recently, Morningstar ranked SMDV tops in a category of nearly 500 small-cap blend funds, a group including both ETFs and mutual funds.
“ProShares Russell 2000 Dividend Growers ETF (SMDV) is the only ETF focusing exclusively on companies within the Russell 2000 Index that have raised their dividends for at least 10 consecutive years,” according to ProShares.
SMDV Is a King
Decreased revenues will undoubtedly affect company dividends moving forward, which should put increased importance on dividends in today’s market. As such, investors should emphasize the need for a dividend growth strategy that can work in a post-coronavirus environment.
SMDV’s dividend dependability is all the more important at a time when small-cap stocks are joining their large-cap peers in being dividend offenders. Along with the focus on smaller companies, investors should also look to dividend growers to potentially enhance long-term returns.
Leverage remains a key challenge for these smaller companies, but if we focus on small- and mid-caps with less leverage, like those that have consistently grown dividends, investors may find opportunities. Many of SMDV’s components carry stronger balance sheets than small-cap companies that aren’t dividend payers.
Quality stocks, including those on SMDV’s roster, present an opportunity to diversify a portfolio. Specifically, investors should consider quality dividend growth stocks that typically exhibit, stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team conviction in their businesses.
“There’s a reason this makes a difference: Consistent dividend growth is a hallmark of quality in equities,” according to ProShares. “While past performance is no guarantee of future results, as a group, these elite dividend-growing companies have typically had stable earnings and solid fundamentals. This financial stability has served as a formula for strong long-term performance.”
SMDV jumped almost 8% last week and yields 2.56%, or 107 basis points more than the yield on the Russell 2000 Index.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.