The iShares Core Dividend Growth ETF (DGRO) has retreated in the past few days as American stocks lose momentum and as investors book profits. It has retreated by over 2.85% from its highest level this year and is hovering at its lowest point since November 2021. So, is there a good reason to invest in the DGRO ETF?
Reasons to avoid the DGRO ETF
The DGRO ETF is one of the top funds for dividend investors in the United States. It is a four-star rated fund by Morningstar and has accumulated over $30.6 billion in assets under management.
The fund tracks the Morningstar US Dividend Growth Index, which is made up of 414 companies that have a proven track record of dividend appreciation. It is mostly beloved because of its substantial dividend growth, especially because of its 23.3% compounded annual growth rate (CAGR) in the last ten years. This CAGR is better than the sector median of 6.3%.
The challenge, however, is that DGRO does not have a strong dividend yield. Data on its website shows that its trailing twelve-month yield stood at 2.17%, slightly higher than the SPDR S&P 500 (SPY) 1.16%.
Indeed, investors who have allocated cash in the DGRO ETF have lost money in the last five years. Its total return in the last five years was about 70%, while the benchmark S&P 500 index rose by 105%.
The same trend has happened this year as the fund has risen by about 20%, while the S&P 500 index has risen by almost 30%. The tech-heavy Nasdaq 100 index has done much better than these funds as it jumped by 41% in the last three years.
Therefore, with DGRO, we have a dividend fund that does not pay a sufficient dividend and one that continues to lag behind benchmark assets.
Top iShares Core Dividend Growth companies
The iShares Core Dividend Growth’s underperformance is because of its top companies. Unlike the S&P 500 and Nasdaq 100 indices that are mostly tech-heavy, the DGRO ETF is mostly made up of companies in the financials industry.
JPMorgan, the biggest bank in the United States, is the biggest part of the fund. It is followed by other large companies in the US like Broadcom, Apple, Microsoft, Exxon Mobil, Chevron, and Johnson & Johnson.
Most of these companies have done well this year. JPM stock has jumped by over 40% this year, bringing its market cap to over $675 billion. JPM is now more valuable than Bank of America and Morgan Stanley, combined.
Broadcom stock price has also surged, bringing its market cap to over $1 trillion, helped by the ongoing demand for AI chips. Apple shares have jumped by 30%, while Microsoft has risen by 20% this year.
DGRO ETF stock analysis
The daily chart shows that the DGRO ETF stock has been in a strong uptrend in the past few weeks. It has formed an ascending channel, which connects the highest and lowest swings since July 2024.
The fund remains above the 50-day and 100-day Exponential Moving Averages. However, it is about to drop below the 50-day moving average, and the lower side of the ascending channel.
Therefore, there are odds that the fund will have some more downside, similar to what the SCHD ETF formed. If this happens, DGRO may drop to the 100-day moving average at $62, which is about 2% below the current level.
In the long-term, however, the DGRO fund will continue doing well, although it will lag the mainstream funds like SPY and QQQ.
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