Investors often overlook mid-cap stocks and that’s especially true of those hunting for equity income, but stocks in the middle have plenty of dividend potency as highlighted by the ProShares S&P MidCap 400 Dividend Aristocrats ETF (CBOE: REGL).
REGL follows the S&P MidCap 400 Dividend Aristocrats Index, the dividend derivative of the S&P MidCap 400. The ProShares fund’s mandate is a minimum dividend increase streak of 15 years, which is high in the universe of mid-cap equities.
One of a small number of dedicated mid-cap dividend ETFs, REGL yields 2.52%, or about 115 basis points more than S&P MidCap 400 Index.
“Pickings are slim in the mid-cap dividend ETF universe and REGL is the only fund in this space using a dividend aristocrats index — the S&P MidCap 400 Dividend Aristocrats,” reports InvestorPlace. “Proving there are some solid options for mid-cap equity income, that index requires a minimum payout increase streak of 15 years and the fund has 53 components. There are other perks, too.”
The mid-cap category has also outperformed their larger 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 allocates about 60% of its combined weight to financial services, industrial and utilities stocks while skirting high-yield, potential dividend offenders in the energy and real estate sectors. Those groups combine for just 5.46% of the fund’s roster.
Many of REGL’s holdings have dividend increase streaks that are more than double the underlying index’s requirement of 15 years.
“Additionally, REGL can be less volatile and offers smaller draw-downs than traditional mid-cap funds when markets tumble,” according to InvestorPlace.
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, along with providing more stable stock prices. Additionally, they are not so big that their size would slow down growth. Long-term data also support the notion that active mid-cap managers have a hard time consistently beating their benchmarks.
Year-to-date, REGL is beating the S&P MidCap 400 Index by about 500 basis points.
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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.