Enhancing Your Income Portfolio With Dividend Growth ETFs

Microsoft Corp (MSFT), Johnson and Johnson (JNJ), and PepsiCo Inc (PEP) mark the top three holdings in this fund. It’s also worth noting that the consumer staples and industrial sectors represent 46% of the total exposure in VIG.

Another top example of this strategy is the ProShares S&P 500 Dividend Aristocrats ETF (NOBL). This fund has $2.4 billion dedicated to a small group of just 40 large-cap stocks from the S&P 500 Index that have raised their dividends for at least 25 consecutive years. Each underlying company is equal weighted with a similar distribution of capital.

For those who want a somewhat more diverse approach, the iShares Core Dividend Growth ETF (DGRO) or  WisdomTree Quality Dividend Growth Fund (DGRW) may be appealing. DGRO owns over 400 stocks across multiple sector and market capitalizations, while DGRW is home to 285 U.S. companies. It’s worth noting that DGRW considers earnings growth as a quality screen and weights its constituents according to their dividend payouts.

The Bottom Line

At the end of the day, dividend growth should be viewed as a screening factor based on quantitative characteristics of publicly traded companies. In my opinion, this category allows ETF investors to stay within the dividend and income theme, while emphasizing an attractive characteristic to diversify their stock exposure.

It can be used as for as either a tactical allocation for a more concentrated portfolio or as a core building block utilizing ETFs with a larger set of underlying holdings.

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