For dividend seekers and those looking to live off of the income generated by their portfolios, dividend growth stocks are a popular investment choice. Many of these stocks aren't necessarily the highest yielders in the world, but their ability to steadily and consistently raise their dividends year-over-year make them ideal from a standpoint of predictability. And who doesn't like getting a raise every year?
There are a number of ETFs available to investors that not only target long-term dividend growers, but have been incredibly successful in doing so. They typically come very cheap and provide different degrees of coverage depending on what you're looking for. That could mean taking a chance at greater growth possibilities with companies that have as little as a 5-year dividend growth record or stick with the durability of companies that have raised their dividend for at least 25 consecutive years.
Better yet, there are options for targeting large-, mid- and small-cap dividend growers, giving investors the ability to build a more well-rounded portfolio with these names.
For the purposes of this list of seven ETFs, I'm going to stick with funds whose primary objective is dividend growth. There are many more funds out there, such as the Schwab U.S. Dividend Equity ETF (SCHD) and the SPDR S&P Dividend ETF (SDY), which combine a dividend growth requirement along with other requirements, such as high yield, balance sheet quality, fundamentals, etc. You might be interested in checking out my earlier piece of top dividend ETFs for 2021 to find some of them.
These will be more pure dividend growth plays and are ideal for most portfolios.
Vanguard Dividend Appreciation ETF (VIG)
VIG is considered by many to be the elite dividend growth ETF. It tracks the NASDAQ U.S. Dividend Achievers Select Index, a benchmark which includes companies that have a 10+ year track record of raising their dividends annually. The portfolio contains a little more than 200 names, such as Microsoft, Walmart, Procter & Gamble and Visa.
It's a deceptively simple strategy that has earned VIG Morningstar's highest 5-star rating over the past 5 years and a 4-star rating since inception.
iShares Core Dividend Growth ETF (DGRO)
Perhaps somewhat less well-known than VIG but equally impressive, DGRO requires a more modest 5-year dividend growth streak in order to qualify for the portfolio, so there's the potential for a little more uncertainty. The fund helps to alleviate that by adding a screen for payout ratios in order to help ensure that the dividend can be maintained and grown over time.
High yielders are also eliminated right off the bat to avoid some of the riskier names.
WisdomThree U.S. Quality Dividend Growth ETF (DGRW)
DGRW is an underrated ETF that takes a bit of a different approach to dividend growth. Instead of looking at past history, it looks at the ability to pay and grow the dividend in the future as its primary selection criteria. It considers long-term earnings growth, return on assets and return on equity in making its determination, while also requiring that the company's earnings yield is greater than its dividend yield in order to help ensure sustainability is not a question.
WisdomTree offers seven different ETFs in total using this quality dividend growth methodology, including global and small-cap offerings.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
Perhaps the name most synonymous with dividend growth, NOBL only considers companies that have paid and grown their dividends for at least 25 straight years, thus earning the coveted "dividend aristocrat" title. As the company notes, this fund includes many companies with stable earnings, solid fundamentals, and strong histories of profit and growth.
NOBL has never been a high yielder, but the current market has pushed its yield to a full 0.7% above that of the S&P 500, making it a more attractive option than it has been in the recent past.
ProShares S&P MidCap 400 Dividend Aristocrats ETF (REGL)
ProShares applies similar logic to its mid-cap focused dividend growth ETF as well. The main difference here is that it only requires a 15-year dividend growth streak in order to qualify. Everything else here, with the exception of targeting mid-caps instead of large-caps, is substantially the same.
ProShares Russell 2000 Dividend Growers ETF (SMDV)
And let's finish off with ProShares' fund that targets small-caps as well. Again, it's similar to both NOBL and REGL, except it requires a more modest 10-year dividend growth history.
VictoryShares Dividend Accelerator ETF (VSDA)
This fund would be the relative unknown of the group considering it has a comparatively more modest $330 million in assets. VSDA starts with a broad large- and mid-cap universe and uses a quantitative multi-factor process to identify dividend-paying companies with a high likelihood of future dividend growth. It then weights the selected components using a methodology that maximizes dividend growth potential at the portfolio level.