Small-cap stocks and the corresponding exchange traded funds are trouncing their large-cap rivals. Some dividend funds are getting on that act, including the ProShares Russell 2000 Dividend Growers ETF (BATS: SMDV).
SMDV, 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. After surging nearly 10% in the second quarter, SMDV resides near all-time highs. The fund is up 6.25% year-to-date.
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.
Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.