The Stock Market Looks Shaky Right Now. History Says Dividend Growth Stocks Are Exactly What You Want to Own.
Key Points
Several concerns are causing an uptick in stock market volatility.
Dividend growth stocks have historically been less volatile.
Adding a top dividend growth stock ETF can help lower your portfolio's volatility without sacrificing returns.
- 10 stocks we like better than iShares Trust - iShares Core Dividend Growth ETF ›
The stock market is on shaky ground right now. The 10-year Treasury is at its highest level since 2007, oil is in triple digits, inflation remains high, and AI companies are warning of a potential spending slowdown. These concerns have caused stock market volatility to increase over the past week.
However, while the stock market looks weak, one group of stocks has historically proven its strength over the long term: dividend growers. They have historically delivered higher returns with less volatility, which is exactly the type of investment you'd want to own in the current environment. Here's a look at the data and a fund that makes it easy to invest in dividend growth stocks.
Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
Image source: Getty Images.
The power of dividend growth stocks
Hartford Funds dug deeply into data on dividend stocks, which they provide to investors in an annual report, "The Power of Dividends: Past, Present, and Future." Since 1960, 85% of the S&P 500's cumulative total return is attributed to reinvested dividends and the power of compounding.
However, granular return data on dividend stocks by policy show a significant divergence in returns:
| Dividend status | Average annual total return | Beta | Standard Deviation |
|---|---|---|---|
| Dividend Growers & Initiators | 10.22% | 0.89 | 15.97% |
| Dividend Payers | 9.20% | 0.94 | 16.71% |
| Equal-Weight S&P 500 Index | 7.74% | 1 | 17.55% |
| No Change in Dividend Policy | 6.87% | 1.02 | 18.45% |
| Dividend Non-Payers | 4.21% | 1.18 | 21.91% |
| Dividend Cutters & Eliminators | -0.96% | 1.22 | 24.80% |
Data source: Hartford Funds and Ned Davis Research.
As that table shows, dividend growers deliver the highest returns of companies by dividend policy. Further, they have the lowest volatility (a beta of less than one and a lower standard deviation indicates lower volatility). That's a winning combination, especially in a time like now, when the market is becoming more volatile.
The easy way to invest in dividend growth stocks
One of the easiest ways to invest in dividend growth stocks is through an exchange-traded fund (ETF), such as the iShares Core Dividend Growth ETF (NYSEMKT:DGRO). The fund tracks the Morningstar U.S. Dividend Growth Index, which screens for stocks that have delivered at least five straight years of dividend growth. It then trims the list by eliminating companies that don't have a positive consensus earnings growth forecast, have a payout ratio above 75%, and rank among the top 10% by yield. These screens weed out weaker dividend stocks. The net result is that the iShares Core Dividend Growth ETF holds 390 companies that should continue growing their dividends.
DGRO's strategy of investing in dividend growers has paid off over the years. It has delivered double-digit total returns over the past 1-, 3-, 5-, and 10-year periods, as well as since its inception in 2014 (12.2%). It has delivered those strong returns with less volatility (three-year beta and standard deviation of 0.67 and 10.4%, respectively).
There's no guarantee the fund's future returns will mirror its past performance, and lower volatility doesn't mean no volatility. However, if history is any guide, DGRO should produce above-average returns with lower overall volatility over the long term.
A smart fund to own right now
There's a lot of uncertainty in the market these days. That makes it a good time to consider adding more stability to your portfolio by including dividend growth stocks via a top ETF like DGRO. While it won't make your portfolio immune to volatility, dividend growers have historically helped lessen its sting while still producing strong total returns.
Should you buy stock in iShares Trust - iShares Core Dividend Growth ETF right now?
Before you buy stock in iShares Trust - iShares Core Dividend Growth ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and iShares Trust - iShares Core Dividend Growth ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $420,109!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,303,689!*
Now, it’s worth noting Stock Advisor’s total average return is 938% — a market-crushing outperformance compared to 211% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of September 16, 2026.
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.
Recommended Articles
