I reiterate a buy on the Vanguard High Dividend Yield Index Fund ETF and upgrade the iShares Core Dividend Growth ETF to a strong buy, favoring DGRO's growth-adjusted valuation with the updated rate cut outlook. Both DGRO and VYM are attractively valued when compared to the SP500 approximated by VOO when adjusted for yield and growth. Between DGRO and VYM, DGRO's focus on dividend growth and tech exposure offers an even stronger risk/return profile.
The iShares Core Dividend Growth ETF is rated a strong buy for its quality holdings and consistent dividend growth. DGRO's top holdings, including Apple, Johnson & Johnson, and Exxon Mobil, demonstrate robust fundamentals and industry leadership supporting future dividend growth. The fund's top 10 holdings averaged 30.32% dividend growth over five years, but several exhibit payout ratios outside the healthy 35–55% range.
iShares Core Dividend Growth ETF has a strong track record as a dividend growth and wealth compounding machine. However, it has a key structural weakness. We look at this weakness more deeply and explain why it prevents us from wanting to own it.
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The company operates as an investment fund that primarily focuses on mirroring the performance of a predetermined stock market index. By allocating at least 80% of its assets directly into the securities that comprise its benchmark index, along with investments that offer substantially identical economic characteristics, the fund seeks to closely track the index's return. The specific index in question is a select segment of the Morningstar® U.S. Market IndexSM, a comprehensive market index covering roughly 97% of the market capitalization of publicly traded companies in the United States. This strategic approach allows investors an opportunity to invest in a broad spectrum of U.S. equities through a single investment vehicle.
This product offers investors the opportunity to engage in a diversified portfolio that aims to replicate the performance of its underlying index. By investing primarily in the component securities of the index and in other investments with similar economic characteristics, the fund allows for broad exposure to the U.S. stock market. This approach is designed for investors seeking to mirror the market performance mirrored by the index.