3 Dividend Growth ETFs That Offer Good Yields And Long-Term Gains

By Marc Guberti Published Nov 21, 10:35AM EST

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Dividend growth ETFs offer a combination of high yields and double-digit annualized growth rates.
These three dividend ETFs have high yields, but they also have low expense ratios and well-diversified portfolios.

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3 Dividend Growth ETFs That Offer Good Yields And Long-Term Gains — © 24/7 Wall St.

Dividend growth stocks have a simple premise. Get low yields now that grow rapidly and generate high income by the time you retire. In exchange for taking low yields now, you typically get higher long-term capital gains than you would with a mature dividend income stock. Luckily, you don’t have to pick dividend growth stocks to get exposure to this strategy. These three dividend growth ETFs make it easy.

Schwab U.S. Dividend Equity ETF (SCHD)

The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD | SCHD Price Prediction) has a 3.92% 30-day SEC yield and a 0.06% expense ratio. The high yield is enough to fulfill the 4% withdrawal rule without selling a single share, and the returns are also decent for a high-yield ETF. The fund has delivered an annualized 9.1% return over the past five years.

SCHD places a strong emphasis on large-cap stocks, with more than 60% of its total assets going toward those positions. The ETF does not give investors any exposure to growth stocks, resulting in less volatility.

SCHD spreads its capital across roughly 100 holdings, with the top 10 stocks making up 42% of the entire portfolio. Its top three stocks — Amgen (NASDAQ:AMGN), Cisco (NASDAQ:CSCO), and AbbVie (NYSE:ABBV) are all up by more than 20% this year.

Vanguard High Dividend Yield Index Fund ETF (VYM)

The Vanguard High Dividend Yield Index Fund ETF (NYSEARCA:VYM) also favors large-cap stocks but spreads its capital across mature dividend stocks and high-growth opportunities. Broadcom (NASDAQ:AVGO) is the fund’s largest position, making up more than 8% of the fund’s total assets. Broadcom’s high placement on the list indicates that VYM has a strong focus on dividend growth stocks. It has 566 total holdings, and its top 10 stocks make up 28% of its total assets.

VYM has a reasonable 0.06% expense ratio and a 30-day SEC yield of 2.47%. Annualized returns have been in the double digits over a long stretch. The 5-year, 10-year, and 15-year annualized returns are 13.0%, 10.8%, and 12.0%, respectively.

Even though Broadcom is the top holding, VYM only puts 17.6% of its assets into tech. Financial stocks are the heavyweight, making up 21.4% of the ETF’s total assets.

iShares Core Dividend Growth ETF (DGRO)

The iShares Core Dividend Growth ETF (NYSEARCA:DGRO) has a 30-day SEC yield of 2.20%, and its 0.08% expense ratio is quite generous, a common pattern for all three dividend growth ETFs on this list. DGRO also has an annualized 12.6% return over the past decade.

DGRO continues the theme of investing heavily into large-cap stocks, with more than 70% of its total positions fitting that parameter. Only 4% of its assets are in small-cap stocks, with the rest going to mid-cap stocks.

Financial services, tech, and healthcare are the big three sectors, making up almost 60% of its total positions. The top 10 holdings make up 27% of its portfolio, with Apple (NASDAQ:AAPL), Johnson & Johnson (NYSE:JNJ), and Exxon Mobil (NYSE:XOM) leading the way.

About the Author Marc Guberti →

Marc Guberti is a personal finance writer who has written for US News & World Report, Business Insider, Newsweek and other publications. He also hosts the Breakthrough Success Podcast which teaches listeners how to use content marketing to grow their businesses.