DGRO Continues To Lead The Way As A Dividend Growth Fund

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DGRO offers low-cost exposure to U.S. dividend growth stocks, with a diversified portfolio and a 5-star Morningstar rating.The fund's strategy focuses on companies with over five years of dividend ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDGRO Continues To Lead The Way As A Dividend Growth Fund\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-11 05:34 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4726086-dgro-continues-to-lead-the-way-as-a-dividend-growth-fund><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>DGRO offers low-cost exposure to U.S. dividend growth stocks, with a diversified portfolio and a 5-star Morningstar rating.The fund's strategy focuses on companies with over five years of dividend ...</p>\n\n<a href=\"https://seekingalpha.com/article/4726086-dgro-continues-to-lead-the-way-as-a-dividend-growth-fund\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4585","symbol_name":"ETF&股票定投概念","start_time":0,"source_url":"https://seekingalpha.com/article/4726086-dgro-continues-to-lead-the-way-as-a-dividend-growth-fund","article_id":"2474703884","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2021146074/image_2021146074.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2474703884","pubTimestamp":1728596096,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"DGRO offers low-cost exposure to U.S. dividend growth stocks, with a diversified portfolio and a 5-star Morningstar rating.The fund's strategy focuses on companies with over five years of dividend gro","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","DGRO":"iShares Core Dividend Growth ETF","BK4588":"碎股"},"translate_title":"DGRO继续引领股息增长基金","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DGRO":0.9},"content_text":"DGRO offers low-cost exposure to U.S. dividend growth stocks, with a diversified portfolio and a 5-star Morningstar rating.The fund's strategy focuses on companies with over five years of dividend growth and a payout ratio under 75%.DGRO has outperformed key competitors like VIG and follows the S&P500's performance, with a 2.2% yield and 9% annual dividend growth.Share repurchases by top holdings like XOM, AAPL, and MSFT enhance dividend sustainability, making DGRO a strong core portfolio holding.   J Studios The iShares Core Dividend Growth ETF (NYSEARCA:DGRO) is a popular, dividend growth ETF at the center of BlackRock’s (BLK) iShares Core lineup. This family of funds is aimed at being a “core holding”, usually charging a rock bottom expense ratio and following a simple index. DGRO even goes so far as to assert the three points of the fund’s value proposition on the website.  1. DGRO offers low-cost exposure to U.S. stocks focused on dividend growth 2. Access companies that have a history of sustained dividend growth and that are broadly diversified across industries 3. Use at the core of your portfolio to seek income  DGRO has some powerful supporters, including Morningstar, who recently reiterated their 5-star rating of the fund. In fact, as of August 30, 2024, DGRO was awarded Morningstar’s Gold Medal, the highest award from the research agency. In the past, we’ve asserted that DGRO is a good core holding, for both reasons mentioned above. Our prior coverage, we provided an overview of the fund including index, portfolio, and distribution. However, it’s time to put DGRO to the test and see if the fund has delivered as promised. Before diving into recent performance, let’s revisit the fund’s portfolio and details. Fund Overview Data by YCharts DGRO is a large ETF that holds a passively managed portfolio of dividend growth stocks. The fund was launched ten years ago, providing shareholders returns that match large equity indices, such as the S&P500 (SP500) along the way. DGRO tracks the Morningstar US Dividend Growth Index, comprised of stocks with growing dividends. The index excludes exposure to specialty finance companies like BDCs and REITs. The Morningstar US Dividend Growth Index is designed to provide exposure to securities in the Morningstar US Markets Index with a history of uninterrupted dividend growth and the capacity to sustain that growth. The index was launched by Morningstar in 2014 and has provided a performance look back for another ten years prior. The index is rebalanced quarterly and reconstituted annually. As the name suggests, the index is concentrated on domestic companies. As an index fund, DGRO’s success hinges largely on the index’s constitution rules. DGRO is built on two core rules. First, a company must grow its dividend for more than five years. Second, the company must maintain a dividend payout ratio under 75%. There are additional qualifiers that help maintain the dividend growth focus, such as the following: In addition, a company’s indicated dividend yield must not be in the top 10% of the US eligible universe, as companies with higher yields tend to reinvest less to fuel future growth and have less room to raise their dividend payments. Existing constituents that fall into this category are allowed to remain in the index if they have recently bought back shares and have not decreased their dividend payment. Morningstar As expected, this index methodology identifies high quality, stable companies. The largest holding of the fund is Exxon Mobil (XOM), followed by Microsoft (MSFT) and Apple (AAPL). Looking at the top ten holdings, each company is a recognizable industry leader that continues to grow their dividend. DGRO is also considerably less concentrated than the S&P500. DGRO has 417 holdings, but only 26.4% of assets are concentrated at the top ten positions. This compares to nearly 35% concentration for the S&P500’s top ten holdings. Data by YCharts Based on current share prices, DGRO yields around 2.2% based on the prior twelve months of distributions paid. While the yield is low, the growth component of the fund’s strategy is powerful. Over the past five years, DGRO’s payout has grown at a compound annual growth rate of 9%. Currently, the fund offers a 100 basis point yield premium over the S&P500, while tracking total return. From my perspective, this is the real acid test for a large cap dividend growth fund. For a fund such as DGRO which is designed to be a core holding, the idea is that investors will hold the fund for years to come. Funds like DGRO are not typically “traded” since investors are seeking long-term dividend growth. For this reason, it can be helpful to also analyze yield on cost to see how the yield can increase over time. DGRO’s five year and ten year yield on cost is 3.5% and 5.7%, respectively. Performance Review Given the significant overlap in terms of large capitalization equities, it comes as no surprise that DGRO has benefited from the success of the equity markets. Holding the largest companies in the world, such as MSFT and AAPL, DGRO has accelerated alongside the S&P500 over the past several years. Since inception, DGRO has roughly equaled the return of the 500 largest publicly traded companies. Since our prior coverage, DGRO has trailed the S&P500 slightly, assuming distributions were reinvested. Data by YCharts However, the picture looks different if the distribution was not reinvested. Given a larger portion of DGRO’s total return comes in the form of quarterly payments, DGRO has materially trailed the S&P500’s appreciation over the past several years. This comes as the downside of the dividend’s “pay me now” philosophy. DGRO has also outperformed key competing funds, including Vanguard’s Dividend Appreciation ETF (VIG). Over the past twelve months, DGRO has outperformed VIG by around 100 basis points. Over the span of ten years, DGRO has outperformed VIG by nearly 400 basis points. The performance divergence is small, but reflective of index construction that impacts total returns. Data by YCharts Thus far, this article has illustrated the success of DGRO’s passive management and minimal fees. Despite the fund’s focus on dividends, DGRO has performed well, beating competitors and trailing the godfather of equity benchmarks. Let’s explore two key pieces of the dividend growth model that contribute to DGRO’s succeed. Earnings Growth Earnings growth is one of the most important pieces of the dividend puzzle. The portion of bottom line cash flow allocated to the dividend is known as the payout ratio. Typically, companies will target a stable payout ratio, leaving earnings growth to make the payment grow. This means factors like organic growth, M&A, and expansion are some of the most important mechanisms for a company to continue growing their dividend. Earlier this year, RBC Wealth Management published a report forecasting earnings guidance for this year and next. Earnings growth is expected to be strong over the next twelve months, despite somewhat of a drag coming from the Magnificent 7’s slowing earnings growth.   RBC Wealth Management When this article from RBC was published, it partially hinged on rate cuts coming from the Federal Reserve.  We think the 2024 earnings growth trajectory is highly dependent on GDP growth staying resilient, near or above the 2.6 percent long-term average and without negative inflation or employment developments. While this scenario is possible, economic vulnerabilities linger, and recession risks should not be ignored. Earnings estimates also seem to be assuming that Federal Reserve policy will turn dovish with multiple interest rate cuts.  Growth powering through the end of 2024 and into 2025 would need some degree of an external catalyst to pan out. Fortunately, the Federal Reserve recently announced the biggest rate cut in four years. Full-year consensus earnings growth from RBC is forecasted at 10% for the full year of 2024. This caliber of earnings growth is an essential component of companies continuing to growth their dividends. As earnings grow, cash flows through to the bottom line for shareholders.   RBC Wealth Management While earnings growth is typically the bedrock of a company’s ability to continue growing their dividend, corporate finance offers other levers to pull. Dividend growth is tricky, especially for a mature business without obvious opportunities for growth. Some of the largest and most dominant companies struggle over time to deliver consistent earnings growth, once they have reached end stage maturity. There are other creative solutions related to capital allocation which can help solve this issue. One example is share repurchase agreements. Share Buybacks Over the course of decades, share repurchase programs have become an increasingly popular component of modern finance. In fact, share buyback programs seem to be a near necessity today. Today, even closed end funds use repurchase programs to manage their share price relative to net asset value. The purpose of this section will be to explain the impact of share buybacks on a company’s dividend. Share buybacks are a tricky, misunderstood, and extraordinarily powerful financial mechanism. Companies that grow typically issue shares prolifically to fund their operations. For example, Tesla (TSLA) continues to issue shares to fund executive compensation and operations. Data by YCharts However, mature companies, like AAPL, typically have ample cash flow. More cash flow than these companies typically know what to do with. Historically, this excess capital was used to fund acquisitions of competing businesses, or a special dividend for shareholders. For example, in 2003, MSFT paid a dividend of $3.00 a share as a supplement to its quarterly dividend of $0.08 per share. Today, share repurchases have largely overtaken special distributions as the preferred option for large companies to return cash to shareholders. While the return to shareholders is equal to a dividend payment, share repurchases are more tax efficient and increase earnings per share. McKinsey & Co. recently published a study on share repurchases and their financial impact. McKinsey The fund’s top three holdings are also active share repurchasers. Over the past three years, AAPL and MSFT have each reduced their outstanding share count. While XOM has also actively repurchased shares, the company issued shares to fund the acquisition of Pioneer Natural Resources in an all-stock transaction. Data by YCharts Conclusion  DGRO is a solid ETF that touts itself as an option to be a core holding. Upon review, we found that the fund has grown its dividend by almost ten percent annually, matches the performance of the S&P500, and charges just 8 basis points. DGRO delivers as promised with a simple, but well executed value proposition. The fund earns a clear Buy rating.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2474703884"}