Mid caps are often referred to as the market’s sweet spot. Not too big as to imply sluggish growth and not too small to prompt investors to be fearful of added volatility. Investors can also gain access to steadily rising payouts in the mid-cap space with ETFs, such as 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.
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.
“For those who have left mid caps out of their portfolios, it’s a missed opportunity,” ProShares said in a recent note. “Since its launch on July 1, 1991, the S&P MidCap 400 has returned 11.8%, outperforming both the S&P 500 and the Russell 2000, which have returned 9.8% and 9.5% respectively.”
Riding With REGL
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’s underlying 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.
REGL has a focused lineup of 51 holdings because so few mid-cap stocks currently meet the 15-year payout increase streak requirement. Still, there are compelling reasons to consider this ProShares ETF.
“The S&P 400 Dividend Aristocrats have higher gross margins, net margins, return on assets and return on equity than the overall S&P 400,” ProShares said. “And, hot off the presses, with more than two-thirds of companies reporting Q3 2019 earnings as of November 1, 2019, the S&P 400 Dividend Aristocrats have generated 3% earnings growth.”
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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.