64 Years of Raises: How DGRO Finds Companies That Never Cut Dividends

The iShares Core Dividend Growth ETF (NYSEARCA:DGRO) was built for investors who want a paycheck that gets bigger every year, not a yield chase. DGRO tracks the Morningstar US Dividend Growth Index, screening for companies with at least five consecutive years of dividend growth and payout ratios under 75%. The fund pays a roughly 2.2% to 2.5% trailing yield at an ultra-low 0.08% expense ratio, and DGRO’s top holdings tell the real story about whether that income is durable. The short answer: the distribution is among the safest you can find in an equity ETF.

How DGRO Manufactures Its Income

DGRO’s distribution comes straight from dividends collected from roughly 400 underlying U.S. companies, passed through quarterly. Because the index requires five years of consecutive dividend growth and caps the payout ratio at 75%, the fund mechanically excludes companies stretching to pay shareholders. That methodology is why the top of the portfolio reads like a who’s who of cash flow machines: Johnson & Johnson (NYSE:JNJ | JNJ Price Prediction), Procter & Gamble (NYSE:PG), AbbVie (NYSE:ABBV), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and JPMorgan Chase (NYSE:JPM).

The Dividend Kings Anchoring the Fund

JNJ just raised its payout to $1.34 per quarter, extending its streak to 64 consecutive years of dividend growth. Q1 revenue rose 9.9% to $24.06 billion and management raised full-year adjusted EPS guidance to $11.45 to $11.65. STELARA biosimilar erosion and a $330 million litigation charge dented quarterly free cash flow, but DARZALEX, TREMFYA, and CARVYKTI are growing fast enough to defend coverage.

P&G is on its 70th consecutive annual increase, paying $1.0885 a quarter and yielding 3.0%. Operating cash flow was $4.05 billion last quarter and management plans roughly $10 billion in dividends and $5 billion in buybacks this fiscal year. Tariff costs near $400 million are pushing EPS toward the lower end of guidance, but the dividend is not the constraint.

The Higher-Yield, Higher-Risk Names

AbbVie is the holding that demands the closest look. The quarterly dividend was raised 5.5% to $1.73, yielding about 3.1%. Humira sales fell 39% last quarter, but Skyrizi at $4.48 billion (+31%) and Rinvoq at $2.12 billion (+23%) have more than filled the hole. With 2.26x net debt to EBITDA and a free-cash-flow yield near 5%, the payout is covered, but the cushion is thinner than the rest of the cohort.

JPMorgan returned $12.20 billion to shareholders in Q1, split between a $1.50 quarterly dividend and $8.1 billion in buybacks. With $291 billion in CET1 capital and a 14% ratio, dividend risk is essentially a function of recession credit losses, not capital adequacy.

The Coverage Cushion Most Investors Miss

Microsoft and Apple yield a combined rounding error, paying $0.91 and $0.27 per quarter respectively. What they bring to DGRO is the opposite of income vulnerability: Microsoft’s 54x interest coverage and Apple’s $100 billion buyback authorization mean these dividends could double and still be afterthoughts. They are the future aristocrats stabilizing the present ones.

Total Return and the Verdict

DGRO is up about 8% year to date and roughly 25% over the past year, trailing SPDR S&P 500 ETF Trust (NYSEARCA:SPY) at about 10% YTD but with materially lower drawdown risk. Against a nearly 5% 10-year Treasury, DGRO’s yield looks modest, but Treasuries do not raise their coupon every year. Investors hunting for a higher current payout can compare DGRO against the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD), which screens harder for yield at the cost of slightly slower growth. The DGRO distribution is safe, and the underlying holdings are still raising payouts. Income-focused investors who can accept a 2% starting yield in exchange for compounding raises should be comfortable. Those who need a 4% check today should look elsewhere.