1 Dividend Growth ETF That Can Supercharge Your Portfolio

Dividend growth stocks have long been a cornerstone of successful investment strategies, offering a powerful combination of consistent income and potential capital appreciation. These companies, known for consistently growing dividend payouts, often demonstrate strong financial health, solid fundamentals and thriving business models.

For investors seeking exposure to this lucrative market segment, exchange-traded funds (ETFs) that hold shares of dividend growth stocks offer a convenient and diversified approach. While individual stock selection can be time-consuming and require extensive research, ETFs offer a simplified solution. They allow investors to gain exposure to a basket of dividend stocks.

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Meet the iShares Core Dividend Growth ETF

Among the various dividend growth ETF options, passively managed ones iShares Core Dividend Growth ETF (DGRO 0.94%) established itself as a top contender in space. This fund tracks the Morningstar US Dividend Growth Index, consisting primarily of US companies with a consistent track record of dividend growth.

The underlying index applies several key criteria to ensure the quality of its holdings. First, companies must have a track record of at least five years of uninterrupted annual dividend growth. In addition, the index excludes real estate investment trusts (REITs) and requires companies to have positive earnings forecasts and payout ratios below 75%.

Portfolio composition and return

The portfolio composition of the iShares Core Dividend Growth ETF reflects management’s emphasis on quality. The fund’s top five holdings are financial giants JPMorgan Chaseleader in healthcare Johnson & Johnsontechnological innovator Applepharmaceutical plant AbbVieand the great energetic ExxonMobil. These companies are renowned for their strong market positions and longstanding commitment to rewarding shareholders with regular dividend increases.

From a yield perspective, the iShares Core Dividend Growth ETF currently offers a distribution yield of 2.26%, which compares favorably with S&P 500is 1.35%. This higher yield provides investors with a significant income stream while maintaining exposure to companies with growth potential.

Cost-effectiveness and performance

One of the most compelling features of the iShares Core Dividend Growth ETF is its yield. With an expense ratio of just 0.08%, it significantly undercuts the average expense ratio of similar funds, which is around 0.13%. This low fee structure allows investors to retain more of their returns, enhancing the benefits of dividend growth over time.

The fund’s performance since its inception in 2014 has also been impressive. Investors who reinvested dividends saw total returns of 212.5% ​​over those 10 years, while those who received distributions still enjoyed a solid return on capital of 146.6%.

DGRO data by YCharts

Suitability for different investor profiles

The structure of the iShares Core Dividend Growth ETF makes it suitable for a wide range of investors. For those in the early stages of their investment journey, the fund provides exposure to high-quality companies with long-term growth potential.

Retirees or income-focused investors can benefit from regular cash distributions, using them to supplement their income while maintaining exposure to a diversified portfolio of dividend producers.

However, it is important to note that, like all investments, the iShares Core Dividend Growth ETF involves risk. The fund’s focus on dividend-paying stocks means it can underperform when growth stocks are favorable.

Additionally, while portfolio companies have historically increased their dividends, there is no guarantee that this trend will continue, particularly during economic downturns.

Is it a purchase?

The iShares Core Dividend Growth ETF offers investors a compelling way to access a diversified portfolio of dividend growth stocks. With a focus on quality companies, attractive yield and low expenses, it is suitable for investors looking for income and potential capital appreciation.

While past performance is no guarantee of future results, the history and structure of the iShares Core Dividend Growth ETF make it an ETF worth considering for those looking to increase their portfolio’s dividend growth exposure.