I wanted to take a few minutes tonight to compare two ETF’s that find their way on to every dividend growth investor’s radar, at some point. At first glance, the two ETF’s seem very similar but are they different? Is DGRO or DGRW the better ETF?

In today’s post we’re going to compare DGRO v DGRW in a heads up battle for the true D-Grow ETF. Let’s get into it.

But first, I hold one of these ETF’s myself. Which one did I think was the best? Check out my Unqualified Investors Portfolio.

Post Agenda

• DGRW Investment Strategy
• DGRO Investment Strategy
• DGRO v DGRW Returns Compared to the S&P 500
• Pros & Cons to DGRW
• Pros & Cons to DGRO
• DGRO v DGRW Key Considerations

DGRW Investment Strategy

DGRW – WisdomTree U.S. Quality Dividend Growth Fund

WisdomTree employs a unique investment philosophy with regard to dividend or dividend growth investing. Rather than focusing, as others do, on just the dividend history, they emphasize a return on equity(ROE) and a return on assets(ROA). Their aim is to find stocks with the potential for future dividend growth. The primary thought is that by focusing on these reliable criteria they may be able to avoid assets simply growing the dividends alone. Thus eliminating assets that may face potential dividend cuts or suspensions.

Additionally, DGRW maintains an above average technology sector allocation. A trait not inherent to other dividend growth ETF’s. With over 30% allocated to technology stocks DGRW hopes to take part in substantial gains within that sector of the market.

DGRO Investment Strategy

DGRO – iShares Core Dividend Growth ETF

IShares follows a more traditional approach to dividend growth investing. They target companies with at least a 5 year dividend growth track record and below 75% of earnings being paid in dividends. This approach to dividend growth investing seeks to find assets offering steadily increasing dividends at a sustainable level.

However, unlike DGRW, DGRO does little to favor one sector over another. Largely the ETF maintains an S&P 500-like profile, allocating capital across a range of sectors equitably.

DGRO v DGRW Returns Compared to the S&P 500

When comparing DGRO v DGRW to the overall market over the previous 10 year period, both DGRW and DGRO have shown competitive performance.

• DGRW: 12.79% annualized returns
• DGRO: 11.49% annualized returns
• S&P 500: 13.46% annualized returns

From a longer term results perspective, investors would have still achieved a higher return investing into the S&P. However, for those needing the higher dividend yield or better yet, a growing dividend yield then both DGRW and DGRO offer a compelling argument. Still, in this instance, DGRW edged out DGRO in annualized returns over the previous 10 years.

DGRW – Pros & Cons

DGRW Pros:

• Focus on quality metrics such as ROE and ROA rather than just dividend increases.
• Higher allocation to technology sector.
• Lower maximum drawdown compared to the S&P 500.

DGRW Cons:

• Slightly higher expense ratio compared to DGRO
• May underperform during strong growth periods.

DGRO – Pros & Cons

DGRO Pros:

• Lower expense ratio compared to DGRW.
• Simpler dividend growth strategy with edge toward dividend sustainability.
• Broader, market-like exposure profile.

DGRO Cons:

• Marginally lower annualized returns compared to DGRW.
• Lower allocation to any specific market sector.
• Higher maximum drawdown compared to DGRW.

DGRO v DGRW Key Considerations

When considering either ETF investment it would be important to think about which strategy better suits you as an investor. Do you like the idea of investing into dividend growth companies based on their returns or through a more straightforward methodology? Both DGRO or DGRW offer investors exposure to dividend growth companies but how they reach that goal is substantially different. Historically, the edge in that department remains with DGRW.

Moreover, investors seeking a focus on quality growth metrics with higher allocation to tech stocks would probably favor the DGRW ETF. However, DGRO’s more traditional approach shouldn’t be discounted to heavily. It’s often said that if it isn’t simple enough to explain to a kid it’s probably too complicated. With DGRO an investor would have a lower expense ratio and an easy to understand investment philosophy.

In all, both ETF’s have a unique offering for investors to consider. Neither ETF has an expense ratio that should send us running for the hills so it really just comes down to which strategy is preferred. Personally, I prefer the higher starting yield with DGRO v DGRW’s lower initial yield. DGRW may ultimately provide more in terms of quote, unquote, dividend growth, but they lag DGRO’s current yield significantly.

In that light, DGRO is my preferred ETF in the DGRO v DGRW debate. Which is highlighted by the significant investment you can see in my Unqualified Investors portfolio.

Until the next post.

God bless,

Jeff

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