With speculation high that the Federal Reserve could raise interest rates multiple times this year, the time is right for dividend investors to consider dividend growth stocks over high dividend names, which are usually more sensitive to changes in interest rates.
The iShares Core Dividend Growth ETF (NYSEArca: DGRO) is a solid idea among dividend growth exchange traded funds. Making DGRO all the more attractive is its paltry expense ratio of just 0.08% per year, or $8 on a $10,000 investment. BlackRock, the parent company of iShares, unveild a slew of fee cuts on iShares core ETFs in October, including DGRO.
DGRO specifically targets companies that pay a qualified dividend, must have at least five years of uninterrupted annual dividend growth and their earnings payout ratio must be less than 75%. While a rise in rates would diminish the attractiveness of dividend stocks with premium valuations and low growth, more high quality dividend payers or the group of dividend growers may stand out.
“DGRO tracks the Morningstar US Dividend Growth Index. To qualify for this index, a company must have established a 5-year history of increasing their dividend payments, display positive consensus earnings forecasts from the analyst community, and pay out no more than 75% of their earnings in dividends,” according to a Seeking Alpha analysis of the ETF.