Not every investor favors this exchange-traded fund, but it could appeal to a lot of people.
There’s a saying I find particularly insightful: “Don’t put all your eggs in one basket.” It’s a simple phrase, yet it captures an essential principle about diversifying investments.
If you’re on the hunt for options to diversify, exchange-traded funds (ETFs) are worth considering. They make it easier to invest in multiple companies without having to buy individual stocks.
One ETF that stands out is the Schwab US Dividend Stock ETF (SCHD). It’s become quite popular, especially among those focused on income. So, is it a good time to invest in this ETF?
About Schwab U.S. Dividend Stock ETF
The name Schwab U.S. Dividend Stock ETF tells us a couple of key things. First, it’s managed by the Charles Schwab Corporation, a major player in financial services. Since its establishment in 1971, Schwab has overseen 31 ETFs.
This ETF focuses specifically on U.S. dividend stocks, holding a total of 103 of them. Notable companies in its portfolio include Amgen, Cisco Systems, AbbVie, Merck, and Coca-Cola.
The aim of this fund is to mimic the total return of the Dow Jones U.S. Dividend 100™ Index. This index specifically targets U.S. companies with strong dividend yields and reliable dividend histories. It features companies like AbbVie and Coca-Cola, both known for growing dividends for at least 50 years.
Another appealing aspect is the cost; like many ETFs managed passively, this one has an expense ratio of only 0.06%. This low fee is part of what makes the Schwab U.S. Dividend Stock ETF rank as the second largest dividend ETF in terms of total assets.
Advantages and disadvantages of purchasing this ETF
So, what makes the Schwab U.S. Dividend Stock ETF interesting for investors? For starters, it boasts a 30-day SEC yield near 4%, which is quite attractive. It’s also been consistent in paying quarterly dividends since it started in October 2011.
From a valuation perspective, it seems like a reasonable choice. While the broader stock market feels a bit inflated right now, the ETF’s average price-to-earnings ratio stands at a more manageable 17.6x.
The quality of the underlying stocks in its portfolio is another positive. The ETF targets top dividend-paying stocks, and its holdings average a market cap of $134.3 billion, with an impressive return on equity at 28.5%.
However, it’s not all sunshine. Some critiques suggest that performance may lag in 2025. Yet, overall, since its inception, the ETF has delivered an average total return of 12.4% per year.
Another criticism is that the ETF is heavily concentrated in a few sectors. About 54% of its portfolio is allocated to just three sectors: energy, consumer staples, and healthcare.
Is the Schwab US Dividend Stock ETF a smart choice now?
Should you jump in and buy the Schwab U.S. Dividend Stock ETF at this moment? I think it really comes down to your investment philosophy.
If you’re a growth investor, you might find better alternatives out there. It’s not particularly hard to locate ETFs that offer higher returns than this one.
But if income is your primary focus, this ETF could be a strong contender. It provides a steady dividend along with decent diversification. So, if you’re looking to earn some income and prefer not to consolidate your investments into a single option, this ETF might be worth considering.
