DGRW ETF: A Aggressive Dividend Progress ETF With A Subpar 1.8% Dividend Yield

An extended-time reader requested for my ideas on the WisdomTree U.S. High quality Dividend Progress Fund ETF (NASDAQ:DGRW). DGRW invests in dividend-paying U.S. large-caps with good development and high quality. DGRW has comparable complete returns to the S&P 500, with a slightly increased 1.8% dividend yield and marginally stronger dividend development.

General the fund looks like an inexpensive funding alternative, and a purchase. However, the fund isn’t an efficient revenue car, as a consequence of its low 1.8% beginning yield. It is a important detrimental, and, I think about, a deal-breaker for a lot of traders.

DGRW – Fundamentals

• Funding Supervisor: WisdomTree
• Expense Ratio: 0.28%
• Dividend Yield: 1.77%
• Whole Returns CAGR 10Y: 12.04%

DGRW – Overview

Index and Holdings

DGRW is an fairness index ETF investing in dividend-paying U.S. large-caps with good development and high quality. The fund first selects large-cap dividend-paying U.S. equities, topic to a fundamental set of inclusion standards. It then selects the 300 of those with the strongest development, based mostly on anticipated earnings development, and high quality, based mostly on previous ROE and ROA. Equities are weighted based mostly on their mixture money dividends, measured in {dollars}, not yield. Bigger corporations are likely to pay increased mixture dividends, so that is akin to a modified market-cap weighting scheme.

DGRW’s underlying index is sort of broad, which ends up in a fairly well-diversified fund with investments in 300 corporations from a number of industries. Diversification is a bit decrease than common for an fairness fund, with little publicity / underweight positions in communication companies and vitality. Supplies and actual property weights are low too, however that’s widespread for many fairness funds. On the flipside, the fund is chubby shopper defensive.

Examine DGRW’s weights:

with these of the S&P 500:

Focus is about common for an fairness fund, with the funds prime ten holdings accounting for 36% of its worth. Largest holdings are all well-known blue-chips, together with Microsoft (MSFT) and Coca-Cola (KO).

DGRW appears to hew fairly intently to the S&P 500, with many of the fund’s holdings being index members:

and with 51% overlap by weight:

As a comparability, the Schwab U.S. Dividend Fairness ETF (SCHD), one of many largest, most well-known dividend fairness ETFs, solely overlaps 11% with the S&P 500.

The Vanguard Excessive Dividend Yield Index Fund ETF Shares (VYM), one other comparable fund, overlaps 32% with the S&P 500. Greater than SCHD, however nonetheless decrease than DGRW.

DGRW’s portfolio is far more just like the S&P 500 than that of most dividend ETFs. Efficiency and fundamentals must be extra comparable as nicely. Though this isn’t essentially a optimistic or a detrimental, it is a vital reality for traders to think about.

Dividend Evaluation

DGRW tilts in direction of higher-yielding corporations in two methods.

First, the fund solely invests in dividend-paying corporations, particularly excluding these with out dividends. Broader fairness indexes, together with the S&P 500, do embody corporations that don’t pay dividends, and so naturally have decrease yields.

Second, fund holdings are weighted based mostly on their mixture money dividends, measured in {dollars}. Basically, giant corporations pay probably the most in mixture dividends, however some with above-average yields do too. One can see this in DGRW’s portfolio. Largest fund holdings are mega-caps Microsoft and Apple, which pay important dividends as a consequence of their dimension.

On the identical time, some corporations have giant mixture dividends as a consequence of their yields. These embody Philip Morris (PM), a smaller firm which is chubby as a consequence of its above-average 5.7% yield.

Though DGRW does tilt in direction of higher-yielding shares, the affect of the above finally ends up being fairly small. DGRW yields 1.8%, which is a bit increased than the yield on the S&P 500, however fairly a bit decrease than common for a U.S. dividend ETF. It’s because the fund solely barely focuses on corporations with above-average dividends, and does so in very oblique methods.

Dividend development appears good, with fund dividends rising at a ten.0% CAGR since inception. Progress appears to have stalled this yr, with dividends reducing by 2.6% these previous twelve months. Ignore the 10Y dividend development determine under, there was a difficulty with the calculation.

Though DGRW’s dividend development has been moderately good previously, the fund’s beginning 1.8% yield is just too low of a beginning base for a dividend development fund. Even long-term traders obtain little in revenue from the fund, with a 10Y yield on value of solely 4.6%. Even T-bills yield greater than that now, and with out having to attend a decade.

DGRW has increased yields on value than the S&P 500, however decrease than most of its friends, particularly compared to SCHD.

DGRW has a better yield and stronger dividend development track-record than the S&P 500, one thing of a profit for traders. Mentioned profit is sort of small, particularly in relation to friends.

As an apart, these outcomes are according to the fund being far more just like the S&P 500 than most different dividend funds. If the portfolio is analogous, then so are the basics, together with yields.

Efficiency Evaluation

DGRW’s efficiency track-record is sort of robust, with the fund reasonably outperforming most of its friends, barely outperforming the S&P 500, since inception. Efficiency has been notably robust because the pandemic ended, round mid-2020.

Dangers appear barely below-average too, with the fund seeing barely outperforming most of its friends throughout 1Q2020, the onset of the coronavirus pandemic.

and experiencing decrease volatility:

Though the outcomes above are correct, I believe they overstate the consistency of DGRW’s outperformance. Fund returns do generally lag behind these of its friends and the market, as was the case from early 2018 to late 2021.

DGRW’s outperformance is remarkably simple to elucidate: the fund is similar to the S&P 500, and stated index has outperformed most dividend funds previously. The flipside of that is that fund dividends are additionally fairly just like these of the S&P 500, so the fund yields a paltry 1.8%.

In my view, a fund with comparable returns to the S&P 500 and a slightly increased yield is sort of clearly a purchase. S&P 500 complete returns are robust, and better yields are at all times a bonus.

However, a 1.8% dividend yield is sort of clearly extremely low, and the fund’s dividend development track-record isn’t that robust both. For revenue traders, the fund is just not a compelling selection. For these traders, SCHD gives roughly comparable returns, with a better 3.7% dividend yield, and a stronger dividend development track-record.

Conclusion

DGRW has comparable complete returns to the S&P 500, with a slightly increased 1.8% dividend yield, and marginally stronger dividend development. The fund is a purchase, however not an efficient revenue car.