Broadly speaking, mid-cap stocks often go overlooked by investors and that is particularly of dividend investors that often focus on larger companies, but the ProShares S&P MidCap 400 Dividend Aristocrats ETF (CBOE: REGL) provides a solid avenue of steady dividend growers in the mid-cap space.
REGL, which recently turned four years old, follows the S&P MidCap 400 Dividend Aristocrats Index. That is the dividend aristocrats offshoot of the widely followed S&P MidCap 400 Index. REGL’s components, which currently number 52, are required to have minimum dividend increase streaks of 15 years.
“When it comes to dividends, large-cap stocks get a lot of the attention,” reports Lawrence C. Strauss for Barron’s. “These larger companies usually have plenty of free cash at their disposal—and cash that can be returned to shareholders. Mid-cap stocks, in contrast, often get overlooked.”
Over a long-term horizon, though, mid-caps have outshined the competition. Since 1996, the S&P MidCap 400 generated an average annual return of 10.4%, compared to 7.3% for the S&P 500 and 9.7% for the SmallCap 600.
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“In the S&P MidCap 400, 275 companies, or nearly 70%, pay a dividend. The average yield in that benchmark is 1.78%. That is a little below the S&P 500’s average of about 2%, but still higher than the 1.51% average for small-cap names,” according to Barron’s.
REGL has a distribution yield of 1.85%, according to issuer data. That is slightly above the dividend yield of 1.83% on the S&P 500 and well above the dividend yield of 1.21% on the S&P MidCap 400 Index.
If the dollar weakens this year, REGL could benefit as well. Mid-caps should not be left out of the dollar conversation. 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.
REGL allocates nearly 47% of its combined weight to financial services and industrial stocks. The utilities and materials sectors combine for 24% of the fund’s weight. REGL is up 7.48% year-to-date.
For more information on middle capitalization stocks, visit our mid-cap category.
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.