AmnajKhetsamtip iShares Core Dividend Growth ETF ( NYSEARCA: DGRO ) is a flawed dividend growth fund. Because of this, I deem it unsuitable as an allocation for my dividend growth investing. The DGRO Pitch iShares offers a few reasons why investors should buy DGRO Low-cost exposure to dividend growth Diversified industries Companies with sustained dividend growth Suitable at the core of an income-seeking portfolio They passively track the Morningstar Dividend Growth Index.
Let's dig into the index methodology. Morningstar Dividend Growth Index To be included in the index, it must pass the following rules and filters: Not a REIT Not in the top 10% of dividend yield Forward expected payout ratio less than 75% 5 years of dividend growth with a current payout Dividends can stay the same provided there is a net share buyback Positions are dividend-dollar weighted At first glance, this looks like a sensible and easy-to-understand dividend growth strategy. What are the specifics I don't like? Sustainable Dividend Growth In my books, there are two types of dividend growth - sustainable and unsustainable growth.
Sustainable growth is one that closely follows long-term fundamental growth such as sales, cashflows, and profit. If dividend growth is exceeding this, chances are it is unsustainable. High unsustainable growth is usually the result of a stock starting with a microscopic dividend and bumping up the payout ratio.
But this can also occur with larger blue-chip stocks trying to ma.
