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Mid-Cap Dividend Aristocrats Generate Alpha

Published Wed, 11 Jan 2017 07:35:16 -0500 on Seeking Alpha

In the last few days, I have published two pieces on combinations - Dividend Aristocrats/Equal Weighting and Low Volatility/Value - that have outperformed the S&P 500 (NYSEARCA: SPY) in 15 of the last 17 years. These factor tilts that have generated long-run market-beating performance are taken from my "5 Ways To Beat The Market" series. Building again on this previous work, the strategy discussed in this article derives its alpha from three of these factor tilts.
The S&P MidCap 400 Dividend Aristocrats Index consists of mid-sized companies within the S&P S&P MidCap 400 ETF (NYSEARCA: MDY) that have increased dividends every year for at least 15 years. This mid-cap dividend growth index is equal-weighted, with its constituents re-weighted every quarter. Therefore, the three factor tilts captured by this index are size, dividend growth, and equal weighting.
The S&P MidCap 400 Dividend Aristocrats Index is replicated by the ProShares S&P MidCap 400 Dividend Aristocrats ETF (NYSEARCA: REGL). If that ticker sounds like it should be for a regional bank index, remember that the ticker for the ProShares S&P 500 Dividend Aristocrats ETF is NOBL. These Dividend Aristocrat funds are referred to as Regal and Noble, and they have generated royal returns over recent periods.
The historical performance of this mid-cap dividend strategy since the beginning of the index is graphed below versus the S&P 400 MidCap Index and the S&P 500.

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