Why DGRO Beats HDV for Any Retiree Who Won’t Touch the Money for 10 Years

Most of the big asset managers have complementary dividend ETFs aimed at slightly different types of income investors. Vanguard, iShares, Charles Schwab, and State Street all offer variations focused on dividend growth, high current yield, or some combination of the two.

For BlackRock’s iShares lineup, two prominent choices are the iShares Core Dividend Growth ETF (DGRO) and iShares Core High Dividend ETF (HDV). Both charge a reasonable 0.08% expense ratio, and both can be fairly tax efficient because their methodologies exclude real estate investment trusts (REITs). That’s about where the similarities end.

For retirees, I find the dividend ETF selection process often boils down to looking at the headline yield and picking whichever number is higher. The reasoning is understandable. Generate enough quarterly income to cover expenses, don’t sell shares, and leave the principal alone.

But principal and income aren’t economically separate buckets. Total return is what ultimately determines how much wealth you have available to spend. And if you’re a retiree who doesn’t expect to touch this portion of your portfolio for another 15 years, the comparison between DGRO and HDV illustrates why I’d prioritize compounding over the highest starting yield.

HDV Pays Considerably More Income Today

If you’re determined to fund expenses exclusively from dividends, HDV has the clear advantage. Its 30-day SEC yield is currently 3.34%, compared with 1.95% for DGRO. Assuming those yields remained unchanged, here’s approximately what a $1 million portfolio would generate before taxes:

HDV produces about $13,900 more annual income, or an average of $3,475 more per quarter. That’s a substantial difference for someone already retired and relying on distributions to pay expenses. HDV lets you extract more cash without selling shares.

But if you’re not planning to spend the money for another decade, I’d argue that this comparison becomes much less important. What matters during accumulation is how quickly the entire investment compounds, including both dividends and share-price appreciation. And historically, that’s where DGRO has pulled substantially ahead.

DGRO’s Total-Return Advantage Has Been Significant

Over the past 10 years, with dividends reinvested and before taxes, DGRO compounded at 13.38% annually. HDV returned 9.11% annualized. A difference of 4.27% might not sound enormous in any individual year, but compounding magnifies it considerably. To illustrate, a hypothetical $1 million invested for 10 years at those historical annualized rates would have grown to approximately:

That’s a gap of roughly $1.12 million. Of course, those are historical returns rather than a forecast. HDV could outperform during a future period when high-dividend value stocks lead the market. But the comparison illustrates the opportunity cost of treating dividends differently from capital gains.

If DGRO produces less dividend income but leaves you with substantially more wealth, you can manufacture additional income later by selling shares. For taxable investors, realizing long-term capital gains can also receive preferential federal tax treatment, although the exact result depends on income, holding period, cost basis, and individual tax circumstances.

Selling shares can feel psychologically different from spending dividends. Economically, however, I’d rather own the portfolio producing the better risk-adjusted total return and sell a small number of shares when necessary than sacrifice substantial long-term compounding solely to avoid touching the share count.

Now, there’s nothing inherently wrong with HDV. A retiree who strongly prefers living on distributions may reasonably prefer its 3.34% SEC yield. And if you really can’t let go of that higher yield, splitting the allocation 50/50 between DGRO and HDV is perfectly reasonable.  You’d increase current income relative to owning DGRO alone while retaining meaningful exposure.

Just recognize what that compromise has historically cost. Over the past decade, every dollar shifted from DGRO toward HDV reduced total return. For money I didn’t expect to touch for another 10 years, I’d personally prioritize the stronger compounding potential and worry about converting that wealth into income when I actually needed it.

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