Dividend ETFs that Look Beyond Large Caps

07/21/2016 9:00 am EST


Todd Rosenbluth

Senior Director of ETF & Mutual Fund Research, CFRA Research

With investors flocking to the relative safety of bonds, S&P Global Market Intelligence thinks investors should look closely at mid- and small-cap dividend paying securities, suggests Todd Rosenbluth, in S&P The Outlook.

In addition to individual stocks, there are some strong income-oriented ETF choices to consider relative to the 1.57% yield offered by the 10-year Treasury bond.

ProShares S&P Mid Cap 400 Dividend Aristocrats (REGL) holds 46 companies that have raised their dividends for 15 or more consecutive years.

Financials (28% of assets), utilities (20%), and industrials companies (17%) are well represented in the portfolio, but all GICS (Global Industry Classification Standard) sectors except energy have representation.

Investors seeking individual stock ideas can look inside here for inspiration, but should be aware that not all the securities found there are undervalued.

Two such holdings by REGL that have buy recommendations from S&P Global Market Intelligence are Albemarle (ALB) and Casey’s General Stores (CASY).

The ETF has a 0.40% expense ratio. For investors seeking a small-cap dividend approach, Wisdom-Tree Small Cap Dividend (DES) is a strong candidate.

Rather than focusing on the dividend record of the company, as REGL does, DES looks at the dividends the company is projected to pay in the coming year.

While financials (25% of assets) and industrials (17%) are widely held, so are consumer discretionary (17%) securities. The ETF’s holdings include Regal Entertainment (RGC) and Lexmark International (LXK).

Meanwhile, SPDR S&P Dividend (SDY) holds a mix of large-, mid-, and small-cap within the S&P 1500 index that have raised their dividends for 20-plus years.

While AT&T (T) is a top-10 holding, so are mid-caps National Retail Properties (NNN) and Old Republic International (ORI).

Financials (24% of assets), industrials (15%), and utilities (14%) are the largest sector exposures for this ETF, which has a 0.35% expense ratio.

We think dividend-growth focused ETFs remain appealing, particularly as the flight to safety has pushed down bond yields.

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Todd Rosenbluth, Editor of S&P The Outlook

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