Smaller stocks, including both mid- and small-caps, can be overlooked components of solid dividend portfolios. The First Trust SMID Cap Rising Dividend Achievers ETF (NASDAQ: SDVY) helps investors access a basket of dividend payers from both the mid- and small-cap spaces.

The First Trust SMID Cap Rising Dividend Achievers ETF, which debuted Thursday, follows the NASDAQ US Small Mid Cap Rising Dividend Achievers Index. That benchmark “is composed of the securities of 100 small- and mid-cap companies with a history of raising their dividends and exhibit the characteristics to continue to do so in the future,” according to First Trust.

SDVY, which yields 2.02%, presents investors with income and mid-cap stock benefits.

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 more stable stock prices. They are not so big that their size slows down growth. Long-term data also support the notion that active mid-cap managers have a hard time consistently beating their benchmarks.

Sizing up SDVY: Best Results Are in the Middle?

SDVY’s high-quality focus may also help dividend growers outperform the broader markets during weaker periods. Dividends have been a powerful source of long-term returns. They have added significantly to returns over time, contributing approximately 32% of the S&P 500’s total return since 1960.

The mid-cap category has also outperformed their larger peers, with lower volatility than small-caps. Moreover, the returns of mid-cap stocks have beaten those of small-cap stocks during the trailing three-, five-, and 10-year periods, with lower volatility.

SDVY YTD Performance

Small- and mid-cap equities—especially the quality ones that consistently grow their dividends—have shown resiliency in tough markets and may be worthy of consideration.

Adding to the case for SDVY is that dividend growth is a hallmark of quality. Component companies provide the best level of dividend growth, a legacy of stability and strength, and a history of weathering market turbulence.

SDVY turns three years old on Nov. 1. The First Trust ETF holds 100 stocks, none of which exceed weights of 1.57% within the portfolio. The fund allocates over two-thirds of its weight to financial services, industrial, and technology stocks.

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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.