Many income investors do not always think of small-cap stocks and exchange traded funds as ideal dividend destinations. Some ETFs can convince investors otherwise, including the ProShares Russell 2000 Dividend Growers ETF (Cboe: SMDV).
SMDV is a dividend spin on the Russell 2000, the benchmark U.S. small-cap index, tracks the Russell 2000 Dividend Growth Index, which includes small-cap firms with dividend increase streaks of at least a decade.
“For investors that like dividend ETFs that seek dividend growth consistency, the ProShares Russell 2000 Dividend Growers ETF is an idea to consider. This dividend ETF tracks the Russell 2000 Dividend Growth Index, a benchmark that requires at least 10 years of dividend increases for admittance,” reports InvestorPlace.
By focusing on companies that have consistently increased dividends every year for the past decade, the Russell 2000 Dividend Growth Index avoids the so-called yield trap where a stock can have a high dividend yield following a steep decline in price.
“By virtue of that dividend increase streak requirement, SMDV’s roster is smaller than standard small-cap strategies with just 59 holdings and 43.5% of those stocks hail from just two sectors — utilities and financial services,” according to InvestorPlace. “Still, it is hard to knock SMDV. From the time the ETF debuted in February 2015 through the end of 2017, SMDV topped the Russell 2000 by 320 basis points.”
SMDV allocates about 43.6% of its combined weight to the utilities and financial services sectors. Industrial and consumer staples names combine for 28%. The weighted average market value of SMDV’s holdings is $2.11 billion.
Small-caps are also focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks, as opposed to large-cap companies that have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar.
When looking at the price-to-earnings ratio and also accounting for inflation, the Russell 2000 is actually trading below its historical mean but still well within its historical one-standard-deviation band. SMDV is up 2% over the past week.
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