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New iShares ETF Targets Dividend Consistency


BlackRock’s (BLK) iShares unit, the world’s largest issuer of exchange traded funds, doubled the size of its already successful core suite of ETFs Thursday with the introduction of 10 new funds.

One of those new ETFs, the iShares Core Dividend Growth ETF (DGRO) , enters the already well-populated but increasingly popular (and growing) field of ETFs that focus on dividend growth.

Like well-established rivals such as the Vanguard Dividend Appreciation (VIG) and the SPDR S&P Dividend ETF (SDY) , DGRO has a dividend increase streak requirement that is used in filtering potential constituents. However, DGRO’s dividend increase streak mandate is five consecutive years of raised dividends compared to 10 for VIG and 25 for SDY. [Big Dividend Growers in ETFs]

DGRO tracks the Morningstar U.S. Dividend Growth Index. In addition to the five-year increase streak, that index only includes companies with payout ratios below 75%. Constituent firms cannot have dividend yields in the top 10% of Morningstar’s selection universe for the index and “if a current Index constituent fails to raise its dividend but does not decrease its dividend and executes share repurchases in the preceding 12 months, resulting in a net decrease in its shares outstanding, the constituent will remain in the Index,” according to Morningstar.

Like the iShares Core High Dividend ETF (HDV) , which has transitioned into the iShares core suite, DGRO charges 0.12% per year, making both funds competitive with VIG and the Vanguard High Dividend Yield ETF (VYM) . As part of its addition to the core lineup, HDV’s annual fee was slashed from 0.4%. [A Look at Tenured Core ETFs]

DGRO’s top-10 holdings include an array of companies with multi-decade dividend increase streaks, including Dow components Exxon Mobil (XOM), Johnson & Johnson (JNJ) and McDonald’s.

On that note, DGRO is predictably heavy on industrial and consumer staples goods stocks combine for almost 35% of the ETF’s weight, according to issuer data. However, the new ETF allocates just over 18.4% of its combined weight to the technology and financial services sectors, two groups that have been the leading dividend growers in the S&P 500 over the past several years. [Tech ETFs Turn Into Dividend Destinations]

While different dividend growth ETFs deliver on that concept in different, two things are certain. First, over long-term time frames, dividend growers outperform stocks that do not raise or do not pay dividends. Second, dividend growth stocks have proven adept at helping portfolios beat inflation. [Inflation Fighting With Dividend Growth ETFs]

DGRO Sector Weights


Chart Courtesy: iShares

ETF Trends editorial team contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.