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DGRO: Here's Why This Is Our Top-Pick Among Dividend Growth ETFs


  • DGRO tracks a basket of U.S. stocks with at least 5 consecutive years of dividend growth.
  • DGRO has outperformed not only a peer group of comparable dividend growth ETFs in recent years but also the S&P 500 since inception.
  • This is our top pick in the dividend growth ETF segment but we take a cautious view given significant uncertainty surrounding ongoing coronavirus outbreak and global growth outlook.

The iShares Core Dividend Growth ETF (NYSE:NYSEARCA:DGRO) with $10.6 billion in total assets is designed to track a basket of U.S. stocks with a dividend growth profile. The fund has an expense ratio of 0.08% making it a good low-cost option to gain exposure to a group of high-quality stocks that are typically leaders in their industries. We highlight that DRGO has outperformed the S&P 500 (SPY) since inception while offering a higher dividend yield which adds to its attraction as a potential core-holding built around a fundamental strategy. This article covers why DGRO is our top-pick in the 'dividend-growth' ETF category considering its strong performance history and what we see is a superior strategy.

(source: Finviz.com)

DGRO Background

DGRO tracks the 'Morningstar US Dividend Growth Index' which only includes stocks that have at least a 5-year history of increasing the dividend payout. There is also an additional screening criterion focusing on dividend sustainability.

  • The index requires companies to pay no more than 75% of earnings on average. The effect here is to exclude companies that may not be able to continue with dividend growth or is facing financial weakness. This rule also excludes real estate investment trusts and other types of corporate structures that typically pay upwards of 100% of earnings.
  • Separately, companies in the top decile based on dividend yield are also excluded. This rule serves to limit exposure to companies with excessively high yields that may be a sign of poor stock price performance or otherwise weak growth income vehicles.

The result of these screening functions leads to a basket of high-quality and fundamentally strong companies that are then weighted by market capitalization. The current portfolio of 478 holdings is otherwise well-diversified across sectors with a tilt towards large-cap value.

Dividend Growth ETF Comparables

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This article was written by

Dan Victor, CFA profile picture
Expert market insight that gets the direction right

BOOX Research is now Dan Victor, CFA

15 years of professional experience in capital markets and investment management at major financial institutions.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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