Markets

A Quality Dividend ETF for Accessing the Market 'Sweet Spot'

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Many have looked to middle-capitalization stocks, or the so-called sweet spot in the equities market, and income-minded investors can also hone in on this segment through a quality dividend growth exchange traded fund.

Mid-caps have been traditionally referred to as the sweet spot between large- and small-cap stocks due to their lower risk profile when compared to smaller companies and their greater potential return when compared to larger firms.

According to Morningstar data, the S&P MidCap 400 returned 8.96% based on annualized total returns for the 10-year period ended March 31, 2017, whereas the S&P 500 gained 7.51% and Russell 2000 rose 7.12%.

This sweet spot has also outperformed other asset categories over time, and focusing on dividend payers may help investors garner enhanced total returns over the long haul.

"Filtering for consistent dividend growth may make that mid-cap sweet spot even sweeter," according to a ProShares note.

Dividend growth has been a way for many investors to provide a sense of stability in a diversified portfolio. Companies that consistently grow their dividends typically include those a cut above the rest with strong fundamentals, a history of profits and growth, and typically stable earnings. Without these traits, companies would find it hard to raise yields let alone pay out consistent dividends.

"Selecting companies with the longest track records of dividend growth identifies a very elite group of high quality mid-cap dividend growers," according to ProShares.

For example, the S&P MidCap 400 Dividend Aristocrats 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. Only 12% of the larger S&P mid-cap universe makes the cut and is included in the resulting portfolio of mid-cap dividend aristocrats.

ETF investors can also access this mid-cap dividend growth story through the ProShares S&P MidCap 400 Dividend Aristocrats ETF (BATS: REGL ) , which tries to reflect the very same mid-cap dividend aristocrats index. REGL comes with a 1.27% 12-month yield and a 0.40% expense ratio.

The mid-cap dividend ETF largely focuses on yield-generating sectors, including 27.9% financials and 19.9% utilities, along with industrials 16.2%, materials 10.9% and consumer staples 6.4%. Compared to the benchmark S&P MidCap 400 Index, REGL is largely overweight financials and utilities but extremely underweight technology.

This article was provided courtesy of our partners at etftrends.com .​

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article was provided by our partner Tom Lydon of etftrends.com.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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