The Five Most Investable Dividend Growth ETFs
ETF Series: Best Dividend Growth Stocks
Identifying and analyzing individual stocks requires a lot of time and knowledge. For some investors it is more practical to find a few ETFs and call it a day!
This article introduces our ETF series for these investors. I review the holdings of ETFs periodically for investment ideas, so I will provide which ETFs I see as the “best to invest”.
Let’s dig in!
Why Dividend Growth ETFs?
For many investors, dividends are synonymous with income—an attractive payout that adds stability to a portfolio. But dividend growth investing offers something even more powerful: a window into a company’s underlying strength and its ability to generate consistent, long-term growth.
Dividend growth isn’t just about building a rising stream of income—it’s about identifying companies with the durability to grow their earnings, cash flows, and competitive advantages year after year. A company that consistently raises its dividend demonstrates confidence in its financial health, strong underlying fundamentals, and the discipline to reward shareholders responsibly. This reliability can provide investors with more than just income; it signals the potential for compounding returns driven by the company’s broader success.
For those seeking a balance between income and growth, dividend growth ETFs offer an elegant solution. They combine the stability of recurring income with exposure to businesses that have proven their ability to grow and thrive in different market conditions. These ETFs align perfectly with the Safe Harbor Stocks philosophy: they represent the kind of safe, resilient investments that help you build wealth steadily and sustainably over time.
Benefits of Dividend Growth ETFs
1. Stability and Reduced Volatility
Safe Harbor Stocks is about providing storm-resistant returns and research summarized in the table below, from The Hartford Funds, illustrates how dividend payers and growers can provide lower volatility and higher returns compared to the broader index.
Over the last 50 years, dividend growers and initiators earned higher returns and lower standard deviation by a noticeable margin. And a look at the comparative chart for the same data further drives home the point.
2. Ease of Use
For those who don’t have the time or knowledge to build and maintain a portfolio of individual stocks, using an ETF is an excellent approach to obtain built-in diversification and rebalancing.
3. Passive Income Growth
As our motto states: “Anchored in Safety. Built for Growth”. While dividend growth doesn’t guarantee returns, it signals a higher probability of compounding success through a company’s reinvestment of earnings.
Ironically, it’s not the dividends themselves that drive the greatest compounding—it’s the retained earnings fueling growth. An increasing dividend is simply a reflection of a company’s true strength: its ability to reinvest and compound capital over time.
“Anchored in Safety. Built for Growth.”
What Makes a Dividend Growth ETF “Investable”?
Not all dividend growth ETFs are created equal. To identify the most investable options, it’s crucial to look beyond headline yields and focus on the quality of the underlying holdings. An investable dividend growth ETF meets several key criteria:
History of Dividend Growth: It should focus on companies with a proven history of consistent dividend growth. This track record often signals financial strength, disciplined management, and a durable competitive advantage. Companies that can grow their dividends over time are typically leaders in their industries with reliable cash flow and strong balance sheets.
Valuation. High-quality companies are only investable if acquired at reasonable prices. Dividend growth ETFs that focus on stocks with attractive free cash flow (FCF) yields and reasonable forward P/E ratios offer a better chance of compounding returns over the long term. Paying too much for growth, even with dividend increases, can erode future performance.
Expense ratio: This ratio should be competitive. Lower fees allow more of the returns to flow directly to investors, maximizing the power of compounding.
Together, these criteria—quality, valuation, and cost—ensure that a dividend growth ETF is not just a source of income but a tool for building lasting wealth.
The Five Most Investable Dividend Growth ETFs
Each of the ETFs reviewed here offers a unique approach to dividend growth investing, whether through valuation, global exposure, or combined strategies like buybacks. While all provide reasonable diversification, I’ve ranked them by valuation metrics to highlight their relative attractiveness.
Given the historical TTM P/E ratio for the S&P 500 likely averages around 18-20x, I think it is prudent to not pay more than this. I filtered dividend ETFs for weighted-average P/E ratios under 20x, among other factors.
1. Capital Group Dividend Growers ETF (CGDG)
Some investors may not be familiar with this ETF but Capital Group as a firm has been around since 1931 now managing more than $2.7 trillion of investments across private and public vehicles.
There are a few aspects I like about CGDG relative to the others. First, CG takes a global approach to dividend investing with 47% of its portfolio in non-US equities without needing to allocate completely to an international ETF. Second, it sports the lowest P/E ratio of the bunch at 15.7x. The fund is not one of the largest but big enough for me to feel comfortable investing in it. Third, and perhaps most important, this ETF specifically focuses on “dividend growers”.
Market Cap: $1.26 billion
Avg. Daily Liquidity: $6.3 million
TTM P/E Ratio: 15.7x
Expense Ratio: 0.47%
Dividend Yield: 2.65%
Price to Cash Flow: 11.1x
WA Market Cap: $78 billion
# of Companies: 85
2. iShares Select Dividend ETF (DVY)
DVY holds one of the smallest weighted-average company market caps on the list at $49 billion, sports a P/E ratio of 16.92x, and an expense ratio of 0.38%.
Market Cap: $20.42 billion
Avg. Daily Liquidity: $52.0 million
TTM P/E Ratio: 16.9x
Expense Ratio: 0.38%
Dividend Yield: 3.44%
Price to Cash Flow: N/A
WA Market Cap: $49 billion
# of Companies: 98
3. iShares Core Dividend ETF (DIVB)
DIVB is interesting in that its strategy invests against the Morningstar US Dividend and Buyback Index. It still provides a healthy dividend yield and has the lowest expense ratio at 0.05%. It is the smallest of the list at a $513 million market cap. DIVB provides fair daily liquidity averaging about $5 million but something to keep in mind.
Market Cap: $513 billion
Avg. Daily Liquidity: $4.97 million
TTM P/E Ratio: 18.5x
Expense Ratio: 0.05%
Dividend Yield: 2.73%
Price to Cash Flow: N/A
WA Market Cap: $39 billion
# of Companies: 433
4. Capital Group Dividend Value ETF (CGDV)
CGDV is another ETF on this list offered by Capital Group. On a multi-period comparison across these other ETFs, as you will see below, CGDV has outperformed although it has underperformed on a shorter-term basis (under 12 months), which is less relevant to me.
Market Cap: $11.24 billion
Avg. Daily Liquidity: $61.6 million
TTM P/E Ratio: 18.7x
Expense Ratio: 0.33%
Dividend Yield: 1.74%
Price to Cash Flow: 13.5x
WA Market Cap: $171 billion
# of Companies: 51
5. Schwab U.S. Dow Jones Dividend 100 (SCHD)
While SCHD remains a popular choice among dividend ETF investors for its low expense ratio and solid reputation, a closer analysis reveals that its recent performance and valuation metrics don't always set it apart. This doesn't mean SCHD isn’t investable—it's on the list—but investors should weigh these factors when comparing it to other options.
Market Cap: $65.76 billion
Avg. Daily Liquidity: $337.2 million
TTM P/E Ratio: 18.4x
Expense Ratio: 0.06%
Dividend Yield: 3.60%
Price to Cash Flow: 10.2x
WA Market Cap: $104 billion
# of Companies: 103
Historical Performance
Below is a chart of the total returns (including all dividends) of the five ETFs above, with the exception of CGDG since it only has about 1 year of performance. I put the Vanguard Dividend Appreciation ETF (VIG) in its place but keep in mind that VIG has a P/E of 25.5x.
The chart and table above covers the past 12 months. I notice a couple of interesting points regarding SCHD. This ETF:
Fails to outperform the other ETFs across this and multiple time periods
Exhibits no less volatility than the other ETFs despite its underperformance
Exhibits no lower drawdowns than the other ETFs
I am not saying SCHD is not investable. It is on the list, but it may not deserve the extra attention it seems to get in recent months.
Investing Considerations
I only invest into individual companies but, given the choice of ETFs here, I would prefer CGDV, CGDG and DIVB.
They do have higher expense ratios, but I address that below. These ETFs appear to focus more on dividend growth and also strategic buybacks, which is another angle I will explore on ETFs in a subsequent article.
Expense Ratios
Some may ask why I would include some of the ETFs with the higher expense ratio. Is the additional expense worth it?
I believe it is. Just in the chart above, you will notice that CGDV and DIVB outperformed SCHD over the last 12 months on a total return CAGR by about 8%. These returns are net of expenses so it’s clear there can be some advantage to a 40bps ETF versus a 6bps ETF.
Other ETF Strategies
You may have noticed that I referred to buybacks a couple of times. I am a big fan of these if the companies execute them strategically and not indiscriminately. DIVB includes a focus on buybacks in addition to dividend growth. Some ETFs focus specifically on buybacks or even GARP (Growth at a Reasonable Price) as factors. I will cover these in a future article under this ETF Series.
ETF Size and Liquidity
Some of these ETFs are newer or smaller in size. I took this into consideration when filtering the ETF universe and omitted the smallest or least liquid ones. The smallest on this list is DIVB at $513 million in market cap. That’s about the minimum I would go but I believe this ETF will grow in the future.
Average daily liquidity is another factor to consider depending upon how much capital you deploy. I believe at least $1-2 million in liquidity daily is sufficient for a retail investor from a reputable sponsor.
Diversification
These ETFs are inherently well diversified. If anything, I would argue that some of them are overdiversified. Only 50-100 companies are necessary for diversification in my opinion, so long as you have a broad composition across market sectors.
Minimum Volatility ETFs
You likely noticed minimum volatility ETFs in your search at some point. The name sounds appealing in a market environment that is arguably overvalued and susceptible to a larger correction. However, I would not rely on some of these ETFs as exhibiting minimum volatility during a market correction.
Some of these ETFs have relatively high P/E ratios (e.g., 25-26x) and I am not sure they will exhibit minimum volatility behavior during a market correction. Multiple compression is a real possibility in a downturn, and the lower betas justified for inclusion in these ETFs rely on only the past 2-3 years of performance.
Essentially, this referenced beta captures the escalator “up” effect of recent past but not the potential elevator “down” effect.
Conclusion
In the end, dividend growth ETFs offer a powerful blend of stability and compounding potential. By focusing on valuation, quality, and costs, you can select ETFs that not only anchor your portfolio but also position it for long-term growth. Whether you're just starting your investing journey or seeking a hands-off solution, these ETFs align perfectly with our Safe Harbor philosophy: steady, sustainable wealth creation.
I hope you enjoyed this breakdown of five investable dividend growth ETFs. I would love to hear your comments or questions below.
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Disclosure: This information is provided for informational purposes only and should not be considered a solicitation or recommendation to buy or sell any securities. The author or entity providing this information may hold positions in the securities discussed. This is not investment advice.