Investors looking for exchange traded funds adhering to the virtues of dividend growth can consider the iShares Core Dividend Growth ETF (NYSEArca: 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. One of that index’s mandates is that constituent firms have a minimum of five years of uninterrupted dividend growth. For example, the Morningstar US Dividend Growth Index does not include companies with yields that rank in the top 10% of the eligible inclusion universe and only companies with a payout ratio of less than 75% can be included, according to Morningstar.
“DGRO is a dividend fund with a low yield relatively. The allocation to communication services and energy is low. If you’re trying to be diversified there’s the option of picking up these two sectors in another fund or just picking individual stocks based on your taste. You’re also getting a lot of technology stock at the cost of consumer staples,” according to a Seeking Alpha analysis of DGRO.
The $1.6 billion DGRO allocates 17.7% of its weight to tech stocks, making that the ETF’s largest sector weight, which is still an uncommon trait among U.S. dividend ETFs. Healthcare and financial services stocks combine for about 30.5% of the ETF’s weight.