The iShares Core Dividend Growth ETF (DGRO) has increased its dividend payouts for 11 straight years, delivering an 8.6% annual growth rate—far outpacing the S&P 500. With a disciplined focus on sustainable dividend stocks, a low 0.08% expense ratio, and a 21% valuation discount to the broader market, this ETF offers investors a rare blend of income growth and undervalued potential.
The Challenge of Consistent Dividend Growth in ETFs
For income-focused investors, consistent dividend growth is a top priority. However, most exchange-traded funds (ETFs) struggle to maintain steady payout increases due to frequent rebalancing and portfolio turnover. Unlike individual stocks, where dividend policies are set by management, ETFs must navigate the complexities of holding multiple securities, often disrupting income streams.
Yet, the iShares Core Dividend Growth ETF (DGRO) has defied this trend. Since its inception in 2014, it has increased its annual dividend payout every year—a feat few ETFs can match. This consistency is not just impressive; it’s a testament to the fund’s disciplined strategy and focus on high-quality dividend stocks.
How DGRO Achieves Its Dividend Growth
The fund tracks the Morningstar U.S. Dividend Growth Index, which applies a rigorous screening process to select stocks. To qualify, companies must meet three key criteria:
- Qualified dividends: Ensures tax-efficient income for investors.
- Five-plus years of consecutive dividend growth: Proves a commitment to returning capital to shareholders.
- Payout ratio below 75%: Safeguards against unsustainable dividends that could be cut.
This approach filters out risky or inconsistent dividend payers, leaving a portfolio of financially robust companies. Top holdings include ExxonMobil, JPMorgan Chase, Johnson & Johnson, Microsoft, and Apple—all leaders in their industries with strong cash flows and a history of rewarding shareholders.
With an expense ratio of just 0.08%, DGRO is also one of the most cost-effective options in its category. Its current yield of 2.14% doubles the S&P 500’s average, making it an attractive choice for income seekers.
A Decade of Rising Payouts
DGRO’s dividend growth isn’t just consistent—it’s accelerating. Since 2014, the fund’s per-share payout has climbed from $0.2577 to $1.4506 in 2025, reflecting a 10-year annualized growth rate of 8.6%. This outperforms the S&P 500’s 5.6% dividend growth rate, providing investors with inflation-beating income.
Notably, the fund’s growth has been resilient even during market downturns. For example, in 2020, amid the COVID-19 pandemic, DGRO increased its payout by 10.5%. This resilience underscores the strength of its underlying holdings and the effectiveness of its screening criteria.
Why DGRO Remains Undervalued
Despite its strong performance, DGRO trades at a 21% valuation discount to the S&P 500, based on the price-to-earnings (P/E) ratio. This discount stems from its sector allocations: the fund is underweight in high-valuation tech stocks and overweight in financials and healthcare—sectors that have lagged but show signs of recovery.
Financials, for instance, could benefit from a Federal Reserve that maintains higher interest rates, boosting bank margins. Meanwhile, healthcare stands to gain from deregulation efforts, which may reduce compliance costs and accelerate innovation. These catalysts suggest that DGRO’s undervaluation may be temporary, offering investors an opportunity to buy at a discount.
Key Takeaways for Investors
- Proven track record: 11 years of consecutive dividend growth, with an 8.6% annualized increase.
- Low-cost advantage: An expense ratio of 0.08% ensures more of your money stays invested.
- Undervalued sectors: Overweight in financials and healthcare, which could rebound in the coming years.
- Resilient income: Outperforms the S&P 500 in both yield and dividend growth.
Final Thoughts
The iShares Core Dividend Growth ETF (DGRO) is more than just a high-yield fund—it’s a strategic play on sustainable income growth. With a decade-long track record of rising payouts, a disciplined investment approach, and a valuation discount to the broader market, DGRO offers a compelling case for long-term investors.
For those seeking a blend of income and growth, this ETF stands out as a top-tier option. Its focus on quality dividend stocks, coupled with its low fees and undervalued sectors, positions it well for continued success.
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