New iShares ETF Targets Dividend Consistency

BlackRock’s (NYSE: 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 (NYSEArca: 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 (NYSEArca: VIG) and the SPDR S&P Dividend ETF (NYSEArca: 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 (NYSEArca: 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 (NYSEArca: 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 (NYSE: XOM), Johnson & Johnson (NYSE: JNJ) and McDonald’s.