Investors should not overlook the potential potency of mid-cap stocks and the related exchange traded funds. Nor should they gloss over the income potential of the asset class. That can be harnessed with funds such as the ProShares S&P MidCap 400 Dividend Aristocrats ETF (CBOE: REGL).
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. The fund recently added some new mid-cap dividend names to its roster, solidifying its roster at 52 members. To be eligible for inclusion in REGL and the underlying index, mid-cap stocks must have dividend increase streaks of at least 15 years.
“Chuck Self, chief investment officer at iSectors in Appleton, Wisconsin, says this results in a broadly diversified portfolio, and the equal weighting means no single holding dominates the fund,” reports U.S. News & World Report.
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.
Long-Term Winners
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.
“Self points out REGL has a higher expense ratio than other pure index funds at 0.4%. But he says that’s offset by the income payment of 1.8%,” according to U.S. News.
Fourteen of the ETF’s holdings have dividend increase streaks of 25 to 34 years. The utilities and materials sectors combine for 23.39% of REGL’s weight. The weight average market capitalization of the fund’s holdings is $5.46 billion.
“Over the past 30 years, dividend-growing companies as a group have outperformed dividend nonchangers, dividend nonpayers, and dividend cutters. REGL is a compelling investment,” said Self in the U.S. News interview.
For more information on middle capitalization stocks, visit our mid-cap category.