Want Decades of Passive Income? Buy This ETF and Hold It Forever

In golf, there's an old saying, "Driving's for show, putting's for dough." Believe it or not, it applies to dividend investing too.

Think of it this way. A large dividend yield is like a long drive. It's eye-catching and draws adulation from the crowd, but what really matters is long-term payout growth. Call it the putting of investing, but it's critical for investors who want to build durable long-term passive income.

Reliable sources of payout growth can be accessed with an array of exchange-traded funds (ETFs), including the iShares Core Dividend Growth ETF (NYSEMKT: DGRO).

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The dependability offered by this ETF makes it a suitable addition to broader buy-and-hold strategies, but it's worth examining how this fund delivers dividend growth.

DGRO does things differently

Many dividend growth ETFs track indexes that make the length of the payout increase streak central to their weighting schemes. Said differently, there are dividend ETFs that track indexes that require 10, 20, or more years of boosted payouts. There's nothing wrong with that methodology, but this iShares ETF does things differently.

This $38.37 billion ETF tracks the Morningstar US Dividend Growth Index, which emphasizes cobbling together a lower-volatility, higher-quality lineup. The strategy works. For the 10 years ended Jan. 31, 2026, just two dividend ETFs outperformed the iShares fund.

Fans of dividend increase streaks can take heart because this ETF and a competing fund tracking the S&P 500 Dividend Aristocrats® index, which requires at least 25 straight years of boosted payouts, have more than 50 holdings in common. However, the iShares fund beat that rival over the past decade. (Dividend Aristocrats® is a registered trademark of Standard & Poor's Financial Services LLC.)

To be sure, the iShares Core Dividend Growth ETF leans into sectors known for steadily rising dividends, as healthcare, consumer staples, and industrial stocks combine for approximately 43% of the fund's roster.

Increasing the ETF's long-term income potential is its exposure to sectors boosting their dividend profiles. For example, the fund's third-largest sector allocation is technology, which is climbing the dividend ranks. In 2024, only healthcare and financial services saw payouts increase at higher compound annual growth rates (CAGR) than did tech.

In fact, this ETF's most significant sector weight is financial services, where improving balance sheet quality should pave the way for the largest domestic banks to pass the Federal Reserve's annual stress test -- thus, setting the stage for increased shareholder rewards.

This ETF has a bright future

The biggest knock against this iShares ETF, and many of its rivals for that matter, is that it's likely to lag in bull markets that are led by low-yielding or no dividend-paying growth stocks. Those are the breaks with dividend investing.

But when accounting for the future dividend growth prospects of the financial services and technology sectors, and this ETF sporting a Sharpe Ratio in excess of the Russell 1000 Value Index over the past 10 years, it's clear the fund checks a lot of boxes for buy-and-hold investors.

Plus, its annual expense ratio is modest at 0.08%, or $8 on a $10,000 portfolio, meaning there isn't a hefty fee chipping away at returns.

Todd Shriber 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.