WisdomTree U.S. Quality Dividend Growth ETF (DGRW): A Solid Choice For DGI Investors?
Welcome to the ETF Daddy Blog! Today, I will be reviewing the WisdomTree U.S. Quality Dividend Growth Fund (DGRW), a well-established dividend ETF that at least in my view, is a bit deceptive in name. That’s not to say it’s not a great product, but a quick scan of its strategy and screening process indicates dividend growth is not necessarily its primary objective. Maybe a comma between “dividend” and “growth” is most appropriate, but before we get into that, let’s just start with a brief overview of how DGRW works.
DGRW Overview
The WisdomTree U.S. Quality Dividend Growth Fund (DGRW) aims to track the investment results of the in-house WisdomTree U.S. Quality Dividend Growth Index, with a screening process as follows:
Dividend Growth: Companies must have a history of increasing dividends, ensuring they are committed to returning value to shareholders.
Quality Metrics: Companies are assessed based on their return on equity (ROE) and return on assets (ROA). These metrics ensure that the companies are not only profitable but also efficient in their use of assets.
Earnings Growth Expectations: Companies must have strong earnings growth expectations, indicating their potential for future profitability and sustainability.
As you can tell, DGRW looks for dividend growth, quality, and earnings growth, but its how these companies are weighted that has the most impact. Like many WisdomTree Indexes, DGRW is dividend-dollar weighted, not dividend-yield weighted. For example, if a company is expected to pay 5% of the total dividends of all companies in the Index, it will constitute 5% of the Index. This approach allows enormous but low-yielding stocks like Apple and Microsoft to be top holdings, resulting in a relatively low dividend yield.
| Stock Ticker | Stock Name | Stock Sector | Weight |
|---|---|---|---|
| MSFT | Microsoft Corp. | Information Technology | 8.01% |
| AAPL | Apple Inc. | Information Technology | 5.26% |
| AVGO | Broadcom Inc. | Information Technology | 4.22% |
| NVDA | Nvidia Corp. | Information Technology | 3.42% |
| ABBV | AbbVie Inc. | Health Care | 3.24% |
| JNJ | Johnson & Johnson | Health Care | 3.10% |
| PG | Procter & Gamble Co. | Consumer Staples | 2.81% |
| HD | Home Depot Inc. | Consumer Discretionary | 2.57% |
| KO | Coca-Cola Co. | Consumer Staples | 2.50% |
| MS | Morgan Stanley | Financials | 2.01% |
| Total | 37.14% |
No ETF can do everything well, but specific to dividends, let’s see how it compares against three alternatives: the iShares Core Dividend Growth ETF (DGRO), the Vanguard Dividend Appreciation ETF (VIG), and the SPDR S&P 500 ETF (SPY).
| Statistic | DGRW | DGRO | VIG | SPY |
|---|---|---|---|---|
| Dividend Yield (TTM) | 1.60% | 2.36% | 1.83% | 1.24% |
| Dividend CAGR (3Y) | 5.78% | 8.86% | 11.65% | 7.08% |
| Dividend CAGR (5Y) | 3.92% | 9.30% | 10.26% | 4.76% |
| Dividend Payout Ratio (TTM) | 43.92% | 46.37% | 38.67% | 26.67% |
| Dividend Consistency Score | 7.99 | 8.43 | 8.59 | 7.63 |
| Dividend Growth Score | 8.65 | 8.06 | 8.41 | 8.46 |
| Dividend Safety Score | 8.53 | 8.16 | 8.56 | 8.66 |
| Dividend Yield Score | 4.39 | 4.85 | 4.19 | 3.69 |
Here, we see DGRW’s 1.60% trailing dividend yield is quite low and not much better than SPY’s 1.24%. While its constituents have an excellent 8.65/10 Dividend Growth Score, that hasn’t translated to much actual dividend growth from the ETF, with three- and five-year annualized dividend growth rates of just 5.78% and 3.92%, respectively. ETFs and stocks aren’t the same, so we sometimes see these mismatches. One possible explanation is that DGRW’s shares outstanding increased substantially before some ex-dividend dates, which would dilute the distributions of existing shareholders.
DGRW’s dividend selections might not be the most consistent, but they’re certainly high quality, evidenced by their weighted average 8.53/10 Dividend Safety Score. Also worth noting is DGRW’s 33.46% return on equity, which demonstrates remarkable quality. Along with a reasonable 43.92% dividend payout ratio, there’s no reason to believe DGRW can’t continue to grow its dividends. The only question is by how much - by starting with just a 1.60% yield, it’s a long way before your yield on cost will be anything significant.
Still, sacrificing yield for return is the name of the game. As shown below, DGRW has nearly matched the returns of SPY over the last decade. It’s also performed better over the last three years, which includes the 2022 market downturn, which suggests it comes with a little bit of downside protection as well. Maybe not as much as some of the more defensive dividend funds out there, like the Schwab U.S. Dividend Equity ETF (SCHD), but that’s what makes it a compelling play from a total returns perspective.
| Total Return | DGRW | DGRO | VIG | SPY |
|---|---|---|---|---|
| 1 Month | 3.06% | 0.55% | 1.91% | 3.53% |
| 3 Month | 2.86% | -0.27% | 0.95% | 4.38% |
| 6 Month | 11.64% | 8.17% | 8.19% | 15.23% |
| 1 Year | 18.91% | 14.66% | 14.68% | 24.50% |
| 3 Year | 38.32% | 22.75% | 25.10% | 32.92% |
| 5 Year | 97.39% | 70.14% | 74.37% | 101.10% |
| 10 Year | 230.69% | 191.66% | 185.98% | 232.52% |
Lastly, here’s a quick summary of how the four ETFs rank in the ETF Daddy Power Rankings System. Overall, DGRW has an excellent 185 ranking out of 935 funds, mainly because of its strong focus on quality, a factor I believe is crucial for long-term investors.
| Rank | DGRW | DGRO | VIG | SPY |
|---|---|---|---|---|
| Size | 69 | 40 | 10 | 1 |
| Expenses | 338 | 84 | 51 | 107 |
| Liquidity | 69 | 103 | 115 | 11 |
| Diversification | 333 | 310 | 313 | 209 |
| Risk | 182 | 96 | 113 | 363 |
| Growth | 705 | 820 | 767 | 348 |
| Value | 745 | 562 | 737 | 754 |
| Quality | 165 | 350 | 277 | 137 |
| Momentum | 306 | 508 | 432 | 183 |
| Sentiment | 330 | 658 | 499 | 219 |
| Overall | 186 | 266 | 225 | 13 |
In conclusion, DGRW is a solid fund, particularly appealing for those looking for a focus on total returns. However, it’s worth noting that you might achieve better results by opting for the lower-cost SPY. DGRW's expense ratio of 0.28% can significantly reduce its already low dividend yield. Despite this, DGRW does offer the benefit of some downside protection, making it a relatively safer choice during market volatility. In the long run, investing in quality companies through DGRW is unlikely to lead to poor outcomes, but it's important to weigh the cost benefits and total return potential when making your investment decision.
That’s it for today! Stay tuned for my next ETF Daddy Blog post, and if you’re interested, please download a sample of the ETF Daddy Power Rankings by clicking here. Happy Investing!