Is DGRO the Smarter Dividend ETF Than SCHD Right Now?
Key Points
The Schwab U.S. Dividend Equity ETF selects stocks based on dividend growth, quality, and high yield considerations.
The iShares Core Dividend Growth ETF focuses more on growing dividends over time with a modest quality screen.
Given accelerating corporate earnings for the S&P 500, DGRO's growth tilt gives it a comparatively better outlook.
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The iShares Core Dividend Growth ETF (NYSEMKT: DGRO) and the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) target dividend-paying stocks, but they go about it in different ways.
DGRO focuses more on dividend growth. SCHD looks for high yield with quality. In many market environments, both strategies tend to produce relatively similar returns.
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But 2026 is a little different. This is an environment where the results are meaningfully different. SCHD is up about 20% year to date, but DGRO is up only 8%. That means investors can gain a clear advantage by being more specific in their selection of dividend stocks.
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How each fund screens its portfolio
The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which screens stocks based on cash flow to total debt, return on equity, dividend yield, and five-year dividend growth. The result is a roughly 100-stock portfolio that hits on all major strategies: dividend growth, dividend quality, and high yield.
The iShares Core Dividend Growth ETF tracks the Morningstar U.S. Dividend Growth Index, which requires at least five consecutive years of annual dividend increases and a payout ratio below 75%. It's a more simplistic selection criterion and therefore creates a broader and more diversified portfolio.
Performance and key metrics
| Metric | SCHD | DGRO |
|---|---|---|
| Expense ratio | 0.06% | 0.08% |
| Assets under management | $94.9 billion | $40.3 billion |
| Dividend yield | 3.2% | 2% |
| Year-to-date return | 19.9% | 8.4% |
| 10-year annualized return | 12.9% | 13.3% |
| Number of holdings | 103 | 394 |
| Top sectors | Consumer staples (19%), healthcare (19%), energy (17%) | Financials (21%), tech (20%), healthcare (17%) |
Data sources: Schwab, iShares.
The biggest differentiator in terms of pure numbers is probably the yield. Dividend growers aren't necessarily the highest yielders, which is evident in the iShares ETF's 2% yield. The high yield of the Schwab ETF has always increased the attractiveness of this fund.
There's a big difference in the portfolios, though. Outside of the similar weights in healthcare, the top three sector holdings are completely different, and there's only 20% overlap in the two funds. The iShares Core Dividend Growth ETF tilts decidedly less defensively, which could give it the advantage in an upward-trending market.
Performance-wise, it's been a tale of two quarters despite the Schwab U.S. Dividend Equity ETF's year-to-date return advantage. It dominated the first quarter when defensives were outperforming. The iShares Core Dividend Growth ETF held up better in the second quarter once tech and growth returned to leadership.
Why DGRO is the better ETF right now
It's looking as if the tech story will be the primary one for the remainder of 2026. Earnings growth is likely to remain strong, and capital investment could be the catalyst that keeps driving it.
DGRO has a meaningful growth exposure advantage. When stock prices are high, that creates some vulnerability. But the big Q1 earnings boom has helped bring valuations back to reasonable levels. This growth is now available at a more reasonable price.
With growth looking like the better bet in the second half of the year, the iShares Core Dividend Growth ETF is the better choice. It may not satisfy on a pure income perspective, but total returns should look favorable.
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David Dierking has positions in Schwab U.S. Dividend Equity ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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