2023-08-06 05:12:59 ET
Summary
- DGRO is a dividend-oriented ETF that tracks the performance of the Morningstar US Dividend Growth Index.
- The fund's portfolio is diversified across multiple sectors and focuses on companies with consistent dividend growth.
- DGRO has demonstrated the ability to reduce portfolio volatility and outperform during sideways markets, making it a potentially powerful investment option.
How did you go bankrupt? Two ways. Gradually, then suddenly. ? Ernest Hemingway
iShares Core Dividend Growth ETF (DGRO) is a dividend-oriented ETF offered by BlackRock's iShares suite of funds. Launched in 2014, DGRO aims to track the performance of the Morningstar US Dividend Growth Index. This index is composed of U.S. equities that have consistently grown their dividends.
DGRO's portfolio is diversified across multiple sectors and includes over hundreds of individual stocks. The fund's primary focus is to seek out and invest in companies that have demonstrated a commitment to long-term value creation via consistent dividend growth.
I like this fund quite a bit, and I think if you're nervous about volatility this is a good fund to rotate into. However, if I'm right about a looming credit event, it would get hit just like all other stocks.
Analyzing DGRO's Portfolio Characteristics
As mentioned, DGRO's holdings are a diversified mixture of individual stocks across various market capitalizations and investment styles. Its portfolio is skewed towards large-cap value names, with a current yield of just under 2.5%, and an expense ratio of 0.08%.
The sector allocation of DGRO moderately favors defensive sectors such as staples, healthcare, and utilities. Conversely, it underweights sectors that do not consistently pay or grow dividends, such as real estate. However, the fund does maintain an overweight position in the technology sector. Still, the defensive positioning is a big plus in my view at this time.
Notably, the top 10 holdings of DGRO represent about 26% of the fund's total value, reinforcing the idea that DGRO provides diversified exposure to quality companies in the U.S. These holdings include well-established companies like Apple Inc. ( AAPL ), Microsoft Corporation ( MSFT ), and Johnson & Johnson ( JNJ ), among others.
The Performance Spectrum
DGRO's performance has been in line with market expectations. While it has slightly trailed the S&P 500 on a total return basis over the last year, much of this underperformance can be attributed to the fund's lack of exposure to certain high-performing stocks.
However, investors in DGRO have been compensated for this underperformance through lower volatility and consistent income generation and growth. Despite its relatively short history (having been launched in 2014), DGRO has demonstrated its ability to reduce portfolio volatility and outperform during sideways markets.
An Essential Core U.S. Large Cap Value Equity Position
DGRO can serve as a core U.S. Large Cap Value equity holding in an investment portfolio. Due to its tilt towards value, it might be beneficial for investors to complement this fund with another that leans towards growth and also has substantial exposure to mid and small-cap stocks. These areas have lagged, but if Technology gets hit, they likely lead on a relative basis.
Final Thoughts
DGRO offers a simple, liquid, and diversified exposure to high-quality dividend-paying companies. The fund's commitment to a process that prioritizes long-term compounding returns makes it a potentially powerful vehicle for investors seeking long-term success.
The fund's impressive track record of dividend growth, combined with its focus on value and diversification, makes it a compelling investment option. Just keep in mind that a credit event would break all equities. If that happens, I suspect funds like these would be down less than headline averages, but still down.
For further details see:
DGRO: A Great Fund, But Won't Be Spared In A Credit Event