Where Will DGRO Be in 10 Years?
Key Points
The iShares Core Dividend Growth ETF has a history of delivering double-digit annualized total returns.
That lines up with the historical returns of dividend growth stocks.
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The iShares Core Dividend Growth ETF (NYSEMKT: DGRO) has delivered a 13.4% average annualized total return over the past decade. If this top dividend ETF maintains that pace, it could grow from its current share price of less than $80 to more than $280 over the next 10 years.
Here's a closer look at the iShares Core Dividend Growth ETF's return potential.
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Investing in historically strong performers
The iShares Core Dividend Growth ETF has also delivered double-digit average annualized total returns over the past one-, three-, and five-year periods as well since its inception in 2014 (12.2%). That lines up with the historical data on dividend growth stocks. Over the last 50+ years, dividend growers in the S&P 500 have delivered a 10.2% average annualized total return, according to data from Ned Davis Research and Hartford Funds.
DGRO has outperformed this average because it doesn't just hold any dividend growth stock. A company needs to pass two strict tests to be included in the index the fund tracks (the Morningstar U.S. Dividend Growth Index). It must have increased its dividend for at least five consecutive years and have a positive earnings forecast with a dividend payout ratio below 75%. It also excludes companies with dividend yields in the top 10% of the screen, as well as REITs. The net result is a group of companies (currently 390) with a strong probability of continued dividend growth.
The past strong performance of this ETF and dividend growth stocks doesn't guarantee similarly strong returns in the future. The past decade has been a strong period for stocks, and the last year has been a big one for dividend growers (21% return for DGRO). Still, given its focus on holding the strongest dividend growers and historical returns of companies that increase their dividends, there's a good reason to believe it can deliver double-digit average annual total returns over the next decade. Assuming a 10% average annual total return, its shares would grow from the current sub-$80 level to nearly $210 in a decade.
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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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