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DGRO vs SCHD: which is a better dividend ETF to buy?

The iShares Core Dividend Growth ETF (DGRO) stock price has stalled in the past few weeks as investors reflect on the recent financial results. The ETF has also wavered as concerns about the debt limit issue and recession risks remain. DGRO was trading at $50, which was a few points below this month’s high of $51.13.

DGRO vs SCHD ETFs

The iShares Core Dividend Growth ETF and the Schwab US Dividend Equity Fund (SCHD) are two popular ETFs among dividend investors. They have several unique characteristics. For one, they both invest in mature companies that have demonstrated dividend growth for a while.

Also, the two funds have some similar companies like Broadcom, PepsiCo, Abbvie, and Chevron among others. The other similarity is that these funds are highly diversified, with hundreds of companies. DGRO has 477 companies while SCHD has 103.

SCHD and DGRO have some differences. The first one is on their expense ratio. DGRO, because of its growth element, has an expense ratio of 0.08% while SCHD has a smaller ratio of 0.06%. 

The other difference is on the composition. The biggest sectors in DGRO ETF are health care, financials, information technology, consumer staples, and industrials, respectively. On the other hand, the biggest sectors in SCHD are industrials, health care, financials, consumer staples, and IT respectively.

As I wrote in this article, a key source of concern with SCHD is its exposure to regional banks, which I believe are still at risk. Financials in SCHD account for 14.08% while in DGRO, they account for 17.81%. 

However, beneath the surface, we see that DGRO’s exposure in the financial sector is mostly in larger companies like Morgan Stanley, Bank of America, and JP Morgan. Therefore, in this case, I believe that DGRO is a better fund than SCHF.

Which is the better buy?

A common question is on the better buy between SCHD and DGRO ETFs. In terms of performance, DGRO has been a better fund than SCHD. In the past five years, SCHD has jumped by 41.64% while DGRO has risen by ~43%. In 2023, SCHD has dropped by 7.1% while DGRO is only down by 0.3%. 

On the other hand, SCHD has a dividend yield of 3.76% while DGRO has a yield of 2.42%. SCHD has also had a better dividend yield in the past four years and a five-year CAGR dividend growth rate of 15.56% compared to DGRO’s 10.32%.

Therefore, in this case, it seems like the DGRO ETF stock has done better than SCHD while the latter has better dividend returns. However, historically, the two funds have done almost the same. If you invested $10,000 in SCHD and DGRO on 1st January 2015, you would now have $22,861 and $22,740, respectively. While SCHD has an edge, the spread is narrowed when you consider the expense ratio.

SCHD vs DGRO returns

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