A Mid-Cap ETF for Income Investors
This article was originally published on ETFTrends.com.
Investors typically drift toward large-cap stocks in search of dividends, but some exchange traded funds prove other parts of the equity market are viable income-generating ideas, too. For mid-cap dividend hunters, the ProShares S&P MidCap 400 Dividend Aristocrats ETF (CBOE: REGL) is an ideal ETF to consider.
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 and provide more stable stock prices. Additionally, they are not so big that their size would slow down growth.
The mid-caps segment has also outperformed their large-cap peers, but with lower volatility than small caps. Moreover, the returns of mid-cap stocks have also beaten those of small-cap stocks during the trailing three-, five-, and 10-year periods, with lower volatility.
“REGL uses a strategy featured on some popular large-cap dividend ETFs: a focus on dividend increase streaks. This mid-cap dividend ETF tracks the S&P MidCap 400 Dividend Aristocrats Index, which is the dividend aristocrats offshoot of the S&P MidCap 400. REGL’s index requires member firms to have raised payouts for at least 15 consecutive years,” reports InvestorPlace.
The mid-cap category has also outperformed their larger peers, but with lower volatility than small caps. Moreover, the returns of mid-cap stocks have also beaten those of small-cap stocks during the trailing three-, five-, and 10-year periods, with lower volatility.
As investors look over their equity market exposure, investors may find that large-cap stock positions are too big for rapid growth and small-caps may expose them to more volatile short-term moves, but middle capitalization stocks and related ETFs may be just right. Middle capitalization stocks, or sometimes referred to as the market’s sweet spot, could help investors achieve improved risk-adjusted returns.
“REGL holds 44 stocks with over a quarter hailing from the financial services sector. The utilities and industrial sectors combine for nearly 29% of the fund’s weight. At the end of last year, REGL’s index had a dividend yield of 2.15%,” according to InvestorPlace.
REGL's underlying 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.
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