One of the key takeaways from of the SPDR Portfolio High Dividend ETF (NYSE:) was that low fees alone don’t make a great ETF—you need to dig into the methodology. A cheap fund with a flawed approach can still underperform or carry risks that aren’t immediately obvious.
Fortunately, the iShares Core Dividend Growth ETF (NYSE:) checks both boxes. It’s not only affordable but also built around a thoughtfully constructed and economically sound benchmark. Here’s what I like—and a few things I don’t—about this popular dividend growth ETF.
DGRO: What I Like
I mentioned fees in the intro for a reason—at 0.08%, DGRO costs you just $8 annually for every $10,000 invested. That’s par for the course for iShares’ “Core” lineup, which emphasizes affordability, but it’s still impressive given the quality of the ETF.
The methodology is another strong point. DGRO tracks the Morningstar US Dividend Growth Index, and front and center is its five consecutive years of dividend growth requirement. While that might seem modest compared to ETFs that demand 10 or even 25 years of growth, DGRO doesn’t stop there.
The index also applies a positive consensus earnings forecast and limits companies with a payout ratio above 75%—two filters that help eliminate yield traps. It goes a step further by excluding stocks with dividend yields in the top 10% of its universe, a move that further screens out distressed companies with unsustainable payouts.
I also like DGRO’s weighting method. Many dividend ETFs default to market-cap weighting or, worse, arbitrary equal weighting, but DGRO uses a fundamental weighting approach, assigning weights based on the total dollar value of each company’s dividend payments.
To keep the fund from becoming too concentrated, no single holding exceeds 3% of the portfolio. Combined with its annual reconstitution in December, this keeps turnover low and allows strong performers to run. The result is a diversified portfolio of 407 holdings with balanced sector exposure.
One more thing—DGRO omits real estate investment trusts (REITs). While this might seem like a drawback for diversification, it significantly enhances the ETF’s tax efficiency, especially given its 2.4% 30-day SEC yield.
A factor screen also shows why DGRO stands out as a dividend ETF. The portfolio tilts towards quality stocks with higher profitability (RMW) and investment exposure (CMA).
These factors reflect companies that, on average, generate more earnings relative to their book value and invest conservatively.
Even compared to a “brand name” quality ETF like the iShares MSCI USA Quality Factor ETF (NYSE:), DGRO delivers higher exposure to these factors—at a lower cost to boot.
DGRO: What I Dislike
My main gripe with DGRO is that it has historically failed to outperform the (SPY) on both total and risk-adjusted returns.
From June 12, 2014, to January 17, 2025, DGRO delivered an 11.77% compound annual growth rate (CAGR) compared to SPY’s 13.23%.
On a risk-adjusted basis, DGRO had a Sharpe ratio of 0.66, trailing SPY’s 0.71. Surprisingly, DGRO also had a slightly higher maximum drawdown of 35.10% versus SPY’s 33.70%, which goes against the expectation that dividend-focused strategies offer better downside protection.
I believe part of this underperformance comes down to DGRO’s portfolio tilt. While its quality tilt has done well in the last decade’s market environment, its slight value exposure lagged significantly in a growth-dominated era.
Another factor could be the 3% cap on individual holdings. While this ensures diversification, it also prevents top-performing stocks from having a larger impact, effectively limiting the portfolio’s ability to fully capitalize on runaway winners.
DGRO: My Verdict
DGRO earns an 8.5/10 from me. I appreciate its low fees, well-designed index, and strong exposure to quality factors, which help mitigate common risks like yield traps.
If there’s one thing I’d tweak, it’s the individual stock weight cap. While diversification is important, I think the 3% cap is too restrictive—5% would strike a better balance between managing concentration risk and letting winners have a larger impact.
That said, we’re currently in a market environment where top-heavy, market-cap-weighted indices dominate, largely driven by the outperformance of a handful of mega-cap stocks. But that kind of market concentration won’t continue indefinitely.
If index performance broadens out in the future—and I believe it will—strategies like DGRO that focus on dividend growth and quality factors could deliver better risk-adjusted returns.
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