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‘DON’ – A Marvelous Mid-Cap Dividend ETF

This article was originally published on ETFTrends.com.

Mid-cap stocks are often seen as the overlooked segment of the equity market. With that, the group's dividend capabilities are also overlooked by some investors. The WisdomTree U.S. MidCap Dividend Fund (DON) is one of the exchange traded funds that can change investors' views of dividends and mid-caps for the better.

DON tracks the WisdomTree U.S. MidCap Dividend Index. That benchmark is “dividend weighted annually to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share,” according to WisdomTree.

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.

“While strictly looking at the latest dividend yields would show the current dividend yield of many mid-cap indexes below their average yields since 2006, when factoring in the trend for buybacks, the combined dividend and net buyback ratio for the WisdomTree U.S. MidCap Dividend Index—and, in fact, other traditional market cap indexes—is currently above their averages since 2006,” said WisdomnTree in a recent note. “This shows price appreciation over the last decade has been driven, in large part, by strong growth in both dividends and buybacks across the various mid-cap benchmarks.”

Other Advantages of Mid-Cap Companies

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, along with providing more stable stock prices. Additionally, they are not so big that their size would slow down growth.

Related: A Smart Beta Treasury Inflation-Protected Securities ETF

“The latest three-year performance for the WisdomTree U.S. MidCap Dividend Index versus the Russell Midcap Value Index was one of the better three-year performance differentials for a dividend strategy compared with a traditional price-to-book value sorting strategy,” according to WisdomTree. “This is a little surprising given the general increase in interest rates that we have seen over the last three years, particularly from mid-2016.”

DON is up 3.71% year-to-date and pays a monthly dividend.

For more information on dividend strategies, visit our smart beta category.

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