This iShares ETF aims to provide stable returns alongside potential long-term dividend growth.
There’s a saying in golf: “Driving is the show, putting is the dough.” It’s quite interesting how this relates to dividend investing as well.
Consider this: a high dividend yield is akin to a long drive—it’s impressive and garners applause, but the real focus should be on long-term dividend growth. This is what we refer to as an investment put, and it really matters for those looking to create lasting passive income.
A solid source of dividend growth can be found in various exchange-traded funds (ETFs), like the iShares Core Dividend Growth ETF (DGRO).
The ETF’s dependability makes it a worthwhile part of a broader investment strategy. While a buy-and-hold approach is common, it’s helpful to understand how this fund achieves its dividend growth.
DGRO offers a unique approach.
Most dividend growth ETFs follow an index that emphasizes the duration of dividend growth streaks. In simpler terms, some dividend ETFs focus on companies that have maintained dividend increases for 10, 20, or even more years. While that’s a valid strategy, the iShares ETF takes a different route.
This $38.37 billion ETF tracks the Morningstar U.S. Dividend Growth Index and aims to blend high-quality selections with low volatility. And the results are impressive: over the ten years ending January 31, 2026, only two other dividend ETFs have outperformed this iShares fund.
This ETF has more than 50 holdings in common with competing funds that track the S&P 500 Dividend Aristocrats® Index, which requires at least 25 consecutive years of dividend increases. Yet, the iShares fund has excelled against these rivals over the last decade. (Dividend Aristocrats® is a trademark of Standard & Poor’s Financial Services LLC.)
Additionally, the iShares Core Dividend Growth ETF leans towards sectors known for steady dividend increases, such as healthcare, consumer staples, and industrials, which together represent about 43% of the fund’s assets.
The long-term return potential of this ETF is boosted by its focus on sectors that have favorable dividend profiles. For instance, technology ranks as the fund’s third-largest sector allocation, and its position in dividend growth is rising. In 2024, only healthcare and financial services displayed a higher compound annual growth rate (CAGR) than technology.
Moreover, financial services is the ETF’s top sector weighting. As the strength of their balance sheets improves, major banks may pass the Federal Reserve’s annual stress tests, creating opportunities for increased shareholder rewards.
This ETF’s outlook is promising
The primary challenge for the iShares ETF, like many of its counterparts, is that it may underperform in a bull market driven by low-yield or non-dividend growth stocks. This contrasts with the essence of dividend investing.
Nonetheless, given the positive dividend growth outlook for the financial services and technology sectors, this ETF’s Sharpe ratio could surpass that of the Russell 1000 Value Index. It’s evident that the fund has ticked numerous boxes for buy-and-hold investors over the past ten years.
On top of that, its annual expense ratio is just 0.08%, translating to a cost of $8 on a $10,000 portfolio. This means that high fees won’t significantly reduce your profits.
