The Evolution of Dividend Growth Investing in the ETF Era

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How Client Preferences Are Reshaping Portfolio Implementation

“Do what is right for clients, and most other things will take care of themselves,” said Bill Bahl, Bahl & Gaynor’s late co-founder.

That philosophy has shaped many of our firm’s long-term decisions, including remaining privately owned, maintaining a disciplined dividend growth investment philosophy, and more recently, evolving our strategies into active ETFs for better client access.

The growth of active ETFs reflects more than a change in investment structure. It reflects, in part, a broader evolution in how advisors build portfolios and how clients prefer to access investment strategies. Across the wealth management industry, advisors are placing increased emphasis on tax-aware implementation, operational efficiency, portfolio transparency, and scalable investment solutions. In many cases, advisors view the ETF structure as one way to address these priorities.

For Bahl & Gaynor, the decision to expand into active ETFs was driven by our ongoing conversations with advisors and clients. We had long managed dividend growth strategies through separately managed accounts (SMAs) and one mutual fund, but advisor demand increasingly centered on whether our capabilities could be delivered through ETFs.

As we evaluated the ETF structure, three considerations emerged as particularly important:

Client impact;
Investment philosophy alignment; and
Portfolio implementation efficiency.

Why Dividend Growth Strategies Translate Well to ETFs

Dividend growth investing is inherently long-term in nature. The philosophy emphasizes companies capable of growing earnings, cash flow, and dividends over time, with the goal of generating a growing income stream alongside capital appreciation potential.

Historically, companies with durable cash flows and consistent dividend histories have also exhibited lower volatility characteristics than the broader equity market. While no strategy can eliminate downside risk or guarantee positive outcomes, many advisors view dividend growth investing as a potential source of portfolio resilience during periods of market stress.

Because dividend growth investing emphasizes long-term compounding, implementation efficiency can play an important role in investor outcomes over time.

Active ETFs may offer several structural characteristics that can complement dividend growth strategies, including:

Potential tax efficiency through reduced likelihood of capital gain distributions relative to mutual funds in certain circumstances;
Competitive operating costs;
Intraday liquidity;
Portfolio transparency; and
Simplified implementation within advisor-managed portfolios.

These characteristics do not guarantee improved investor outcomes, and benefits will vary based on market conditions, portfolio management decisions, and individual tax circumstances. However, for many advisors, the ETF structure has become an increasingly attractive way to access active equity strategies.

Tax efficiency was an especially important consideration in our evaluation process. Dividend growth investing focuses heavily on long-term compounding, making after-tax outcomes an important consideration for many investors. The ETF creation/redemption mechanism may help reduce the likelihood of taxable capital gain distributions generated through portfolio trading activity, particularly when compared to traditional mutual fund structures, though actual tax results depend on portfolio activity and each investor’s tax circumstances.

Operationally, we also found that ETFs integrate well into modern advisor workflows. Increasingly, advisors are implementing portfolios through model-based approaches that emphasize flexibility, transparency, and scalability across client accounts. In that environment, ETFs can function as efficient portfolio building blocks alongside SMAs, individual securities, and other investment vehicles.

The Shift From Product Selection to Portfolio Construction

One of the more notable developments in recent years has been the growing diversity of advisor business models.

Some advisors continue to center client portfolios around SMAs, particularly for core domestic equity exposure. Others increasingly manage portfolios through ETF-centric models that combine passive and active strategies within broader asset allocation frameworks. In both cases, active ETFs can serve a complementary role.

We have observed that dividend growth ETFs are often utilized in one of two ways:

As a complement to existing portfolio allocations, particularly for advisors seeking additional income-oriented exposure; or
As a core allocation within advisor-managed ETF models focused on income growth, downside risk management, and tax-aware implementation objectives.

This flexibility has broadened the ways advisors incorporate dividend growth strategies into client portfolios.

As our ETF platform expanded, we began to engage with more advisors whose practices were built primarily around ETF implementation rather than traditional SMA structures. Many of these advisors emphasize outcomes such as growing income, risk management, and tax efficiency — objectives that closely align with our investment philosophy.

Lessons Learned From Building an Active ETF Platform

We entered the active ETF marketplace in 2021 with the launch of our smig® Small/Mid-Cap Income Growth ETF (SMIG), and have since expanded the platform to include three additional ETFs that mirror long-established dividend growth strategies previously offered primarily via SMA.

Earlier in 2026, we completed the merger of our flagship large-cap income growth mutual fund into the Bahl & Gaynor Income Growth ETF (BGIG), representing the final step in the development of our ETF platform. Our approach to ETFs has been informed not only by evolving client demand, but also by decades of experience managing active equity portfolios through different market environments.

As we developed our active ETF suite, several themes emerged that may be relevant for advisors evaluating ETFs more broadly:

Transparency Matters

Our firm’s history in separately managed accounts reinforces the importance of portfolio transparency. As a result, we elected to use a fully transparent ETF structure across our platform, which aligned closely with how we already communicated portfolio positioning and investment decisions to clients.

Liquidity Profile Still Matters

The investment vehicle itself does not change the liquidity characteristics of the underlying holdings. For active equity managers, understanding how portfolio liquidity interacts with ETF trading dynamics remains an important consideration when evaluating implementation and structure.

We found the ETF creation/redemption mechanism integrated efficiently with our portfolio management process while also supporting operational flexibility for advisors and investors.

Clear Client Outcomes Differentiate Strategies

The rapid growth of the ETF marketplace has created an increasingly crowded investment landscape. In our view, successful strategies must clearly communicate the role they are intended to play within client portfolios.

For us, that means maintaining consistent focus on dividend growth investing and the client outcomes we believe it may support over time — growing income, downside risk awareness, and long-term capital appreciation.

Conclusion

The continued growth of active ETFs reflects a broader shift in portfolio construction across the advisory industry. Advisors increasingly seek investment vehicles that combine flexibility, transparency, scalability, and tax-aware implementation.

Dividend growth strategies may align particularly well with the ETF structure because both emphasize long-term investor outcomes and efficient portfolio implementation.

At the same time, the structure itself is only one component of successful investing. Ultimately, the effectiveness of any investment vehicle depends on how thoughtfully it is integrated into a broader portfolio strategy and how consistently it supports client objectives over time.

As the ETF landscape continues to evolve, we believe disciplined investment philosophies, combined with flexible implementation, will become increasingly important for advisors and their clients.

Robert S. Groenke is the CEO of Bahl & Gaynor, Inc.

Disclosure

This material is for informational purposes only and does not constitute investment advice or a recommendation. All investments involve risk, including the possible loss of principal. Dividend payments are not guaranteed and may be reduced or eliminated. ETFs are subject to market risk and may trade at a premium or discount to net asset value. Any discussion of tax efficiency is general in nature; outcomes will vary based on individual circumstances. References to specific strategies are for illustrative purposes only. Past results, portfolio characteristics, and structure features do not guarantee future results.

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