The iShares Core Dividend Growth ETF (DGRO) delivered higher total returns than the Schwab U.S. Dividend Equity ETF (SCHD) over the last 10 years [1, 2].
This performance gap highlights how different screening criteria for dividend history can significantly alter the composition and growth potential of a portfolio. While strict filters aim for stability, they may exclude high-growth companies that have only recently established dividend programs.
According to market data, DGRO achieved a total return of 250% over the last decade [2]. In comparison, SCHD produced a total return of 233% during the same period [2].
The difference in performance is attributed to the funds' respective quality filters. DGRO utilizes a looser five-year dividend screen [1, 2]. This approach allowed the fund to include high-growth stocks that did not yet meet the stricter 10-year dividend history requirement maintained by SCHD [1, 2].
Two specific holdings played a pivotal role in lifting DGRO's overall returns. Apple saw a 10-year gain of 1,286% [2], while Broadcom experienced a gain of 3,215% [2]. These stocks provided substantial growth that the more restrictive SCHD filter would have bypassed.
Investors often view strict dividend requirements as a proxy for corporate stability. However, the data suggests that a slightly more flexible window for dividend growth can capture the transition of tech giants into dividend-paying assets, providing a boost to total returns without sacrificing the core objective of dividend growth.
“DGRO achieved a total return of 250% over the last decade”
The divergence between DGRO and SCHD demonstrates the trade-off between rigorous quality screens and growth capture. By requiring a shorter track record of dividend payments, DGRO was able to integrate aggressive growth stocks like Broadcom and Apple earlier than a 10-year filter would allow. This suggests that in a market driven by tech expansion, overly strict dividend requirements may act as a drag on total returns by excluding the most productive growth companies.
