Want Passive Income? This Dividend ETF Has Beaten Its Peers for the Last Decade

If you're trying to build passive income, it's tempting to sort dividend ETFs by yield and click on the one with the biggest number. The highest yield today can feel rewarding, especially if you want income fast. However, long-term wealth is typically built through consistent dividend growth, not eye-catching payouts that may not last.

One fund that leans into the "slow and steady" philosophy is the iShares Core Dividend Growth ETF (DGRO). Rather than chasing the biggest yields in the market, it focuses on companies that are steadily increasing their dividends over time, reinforcing long-term financial fitness. That strategy has translated into strong long-term performance.

Dividend growth

A high dividend yield can be eye-catching. But yield alone does not guarantee rising income over time. Companies that consistently increase their payouts tend to have stronger balance sheets, improving earnings power, and disciplined capital allocation.

Over decades, that steady growth can make a meaningful difference, especially for investors reinvesting dividends or building retirement income.

DGRO is designed around that principle. Rather than focusing strictly on companies with the longest dividend increase streaks, it tracks the Morningstar US Dividend Growth Index, which emphasizes quality and sustainability alongside growth.

Between February 1, 2016, and January 31, 2026, the iShares Core Dividend Growth ETF posted a 10-year annualized return of about 13.87%. Only two dividend-focused ETFs, the First Trust Rising Dividend Achievers ETF (RDVY) and the WisdomTree U.S. Quality Dividend Growth Fund (DGRW), delivered higher annualized returns over that period.

How DGRO stands out from other dividend ETFs

Many dividend ETFs give heavy weight to companies with decades-long payout streaks. Some indexes require 10, 20, or even 25 consecutive years of dividend increases.

There's nothing inherently wrong with that model. However, it can tilt portfolios heavily toward mature sectors while underweighting areas where dividend growth is accelerating.

DGRO takes a slightly different route. It prioritizes companies with strong fundamentals and a history of growing dividends, but it does not rely exclusively on long streak requirements. The result is a portfolio that blends stability with forward-looking growth potential.

Sector positioning reflects that balance. Financial services represent the fund's largest allocation, followed by meaningful exposure to healthcare, industrials, and consumer staples. Together, those sectors have traditionally supported steady payout growth.

Technology also represents a significant portion of the portfolio. Tech companies have increasingly strengthened their balance sheets and raised dividends in recent years, adding another engine of potential income growth.

Performance and costs

When evaluating dividend ETFs, it's not just about the strategy. Performance history and fees also play a major role in long-term results.

DGRO's five-year return of roughly 59% reflects price gains plus reinvested dividends. Its 14.8% gain over the past year and 4.7% increase so far in 2026 suggest that dividend-focused strategies don't necessarily have to lag in strong markets.

Then there's cost. The ETF carries an expense ratio of just 0.08%. That works out to $8 annually for every $10,000 invested. It may not sound like much, but fees compound; keeping expenses low preserves more of your returns and helps your income stream grow faster.

When it might fall behind

Dividend growth strategies are not designed to dominate every market environment. During bull markets led by high-growth, low-yield technology stocks, dividend ETFs can sometimes trail broader indexes. Companies reinvesting aggressively rather than paying dividends may outperform in those phases.

However, dividend growth strategies often shine when markets become more selective. Companies with consistent earnings, manageable payout ratios, and strong cash flow profiles can offer resilience alongside income.

Is DGRO right for you?

If you're building a long-term portfolio, DGRO could fit into a long-term buy-and-hold strategy focused on building passive income without sacrificing diversification.

Its emphasis on quality screening and sustainable dividend growth helps reduce the risk of dividend cuts, while broad sector exposure supports capital appreciation over time.

Rather than chasing the highest payout available, the strategy centers on increasing income streams gradually and consistently.

Unlike some dividend funds that simply screen for the highest current yields, DGRO applies profitability and payout sustainability filters. Companies must demonstrate consistent earnings and maintain reasonable payout ratios, which helps reduce the risk of dividend cuts. The index also removes firms that fail quality screens, reinforcing its focus on financially stable businesses.

That matters for passive income investors. A dividend cut can hurt twice, reducing income and often triggering share price declines. By emphasizing balance sheet strength alongside dividend growth, DGRO aims to build income that rises over time without taking on excessive risk.

Bottom line

DGRO highlights a key principle of dividend investing: steady growth often beats flashy yields. With a solid five-year return, double-digit gains over the past year, low fees, and a focus on sustainable payout growth, it checks many boxes for investors looking to build passive income the smart way.

In dividend investing, consistency tends to win. Over time, rising payouts and low costs can help support a stress-free retirement through dependable income and disciplined growth. That's what long-term passive income is really about.

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