SCHD vs. DGRO – Which Dividend ETF is Better?

Hey there! Let’s dive into a comparison of two popular dividend growth ETFs: SCHD and DGRO. Both aim to give you a stream of income that hopefully increases over time, but they go about it in slightly different ways.

The Schwab U.S. Dividend Equity ETF (SCHD) is a bit of a rockstar in the dividend ETF world, and for good reason. It tracks the Dow Jones U.S. Dividend 100 Index, which focuses on high-quality, high-yielding U.S. companies that have a history of consistent dividend payments.

• What’s under the hood? SCHD looks for companies with at least 10 consecutive years of dividend payments, strong financial health (based on things like return on equity, cash flow to total debt), and a decent dividend yield. This tends to lead to a portfolio of well-established, profitable companies. The selection screen includes things such as free cash flow dividend by total debt, return on equity, dividend yield and 5 year dividend growth rate. It ranks companies by those four metrics and then orders them based on a composite score. The top 100 ranking companies make the ETF. The Top 5 holdings as of today are Coca-Cola, Verizon, Lockheed Martin, Conoco Phillips and Altria.
• Yield: SCHD generally offers a higher dividend yield compared to DGRO. As of April 18th, 2025, it has a distribution yield of 3.72% but that will change depending on payouts and price.
• Expense Ratio: SCHD is known for its low cost, with an expense ratio of just 0.06%. That means for every $10,000 you invest, you’ll pay only $6 in fees per year. Pretty sweet!
• Multi-Year Performance (Annualized as of the most recent data):
  • 1-Year: 8%
  • 3-Year: 5.9%
  • 5-Year: 17.3%
  • 10-Year: 11.4%
  • Since Inception (October 2011): 12.9%

The iShares Core Dividend Growth ETF (DGRO) takes a slightly different approach. It tracks the Morningstar US Dividend Growth Index, which focuses on U.S. companies with a history of consistently growing their dividends without as much focus on current yield as SCHD. 

• What’s under the hood? DGRO looks for companies that have increased their dividends for at least five consecutive years. It also considers factors like the company’s payout ratio and earnings forecasts to try and identify sustainable dividend growth. This can lead to a broader portfolio with potentially more mid-cap companies compared to SCHD. The Top 5 holdings as of today are JP Morgan & Chase, Microsoft, Exxon Mobil, Johnson & Johnson and Apple.
• Yield: DGRO typically has a lower dividend yield than SCHD. As of April 18th, 2025, its distribution yield is 2.24% . The focus is more on the growth of the dividend over time rather than the immediate yield.
• Expense Ratio: DGRO is also quite cost-effective, with an expense ratio of 0.08%. Still very low, just a hair more than SCHD.
• Multi-Year Performance (Annualized as of the most recent data):
  • 1-Year: 8.8%
  • 3-Year : 7.5%
  • 5-Year: 16.3%
  • 10-Year: 11.5%
  • Since Inception (June 2014): 11.3%

Performance wise both have been similar. In the last 10 years, both have also trailed the S&P 500 as evidenced by the data below showing the end result of a $10,000 investment in both these ETFs and SPY, the S&P 500 ETF.

While the two ETFs trail the S&P, they do offer something slightly different with a focus on income and income growth which helped them have slightly reduced drawdowns during market downturns during this period.

So, When Might One Be Better Than the Other?

The choice between SCHD and DGRO really boils down to your investment goals and preferences:

You might prefer SCHD if:

• You prioritize higher current income: If you’re in a phase of life where you need more immediate cash flow, SCHD’s higher yield might be more appealing.
• You favor well-established, profitable companies: SCHD’s focus on quality and dividend payment history tends to lean towards larger, more mature businesses.
• You want the absolute lowest expense ratio (even if it’s a tiny difference): SCHD is a tad cheaper.

You might prefer DGRO if:

• You prioritize dividend growth potential: If you’re more focused on seeing your dividend income increase steadily over the long term, DGRO’s selection criteria might be more aligned with that goal.
• You want broader diversification: DGRO generally holds more companies than SCHD, which could offer slightly better diversification across the market.
• You’re comfortable with potentially slightly lower initial yield for potentially higher long-term growth: DGRO’s focus on consistent growers might lead to better total returns over the very long run, even if the starting yield isn’t as high.

In a Nutshell:

Think of SCHD as the ETF that gives you a potentially bigger slice of the pie now, while DGRO is aiming to give you a pie that grows bigger over time. Both are solid choices for dividend growth investing, and the “better” one depends on what you’re looking for in your portfolio. It’s even possible that some investors might choose to hold both to capture the benefits of each strategy!