Investors and advisors are seeing headwinds rising on the horizon, and in turn are rotating into areas like dividends. That’s drawing new attention to dividend growth ETF strategies at VettaFi in the ETFDatabase, with a variety of strategies available for investors to consider. So, what’s should investors and advisors do to find the right dividend growth strategy? Using VettaFi’s head-to-head comparison tool, it’s possible to dig deep on an ETF’s technical traits as well as its approach, fees, and other important attributes.
Why might markets be transitioning into a dividend factor focus? Dividend growth approaches stand out of course due to their ability to add current income to a portfolio. More than that, however, dividend growth strategies also benefit a fund by guiding managers and investors to firms with a healthy overall outlook, indicated in part by those dividends. While strong dividend growth doesn’t guarantee a positive future for a firm, it does indicate some positive momentum and fundamentals.
Consider, for example, the WisdomTree US Quality Dividend Growth Fund (DGRW). DGRW tracks the WisdomTree U.S. Quality Dividend Growth Index, which holds large and mid-cap dividend-paying U.S. stocks with growth characteristics.
DGRW looks for potential dividend growth rather than investing solely based on backward-looking dividend increases. It considers forward-looking earnings estimates as well as historical return on assets (ROA) and return on equity (ROE) growth as well. It weights stocks more likely to pay dividends more highly. Charging 28 basis points (bps), the dividend growth ETF recently hit its ten-year ETF milestone and has returned 11.7% YTD.
Investors can use VettaFi’s comparison site to put an ETF like DGRW up against another ETF like the iShares Core Dividend Growth ETF (DGRO). DGRO charges less, just 8 bps, but has a smaller track record, going back less than a decade. It tracks the Morningstar U.S. Dividend Growth Index, with a larger AUM than DGRW’s, $24.1 billion to $9.8 billion.
DGRO looks for stocks with a five-year track record of increasing dividends, while emphasizing sustainable growth. It does tend to broadly replicate the overall market itself. Taken together, it not only trails DGRW in returns YTD, with DGRO returning 4.5% compared to 11.7% in that time.
DGRW has also outperformed DGRO over the last one, three, and five year periods by 7%, 1.6%, and 1.7% respectively. For those investors looking for a dividend growth ETF, consider DGRW compared to other dividend growth ETFs.
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