I typically invest in individual stocks, but over the last year, I’ve shifted some focus towards exchange-traded funds (ETFs). They’ve been helpful in diversifying my portfolio while honing in on my strongest ideas.
One investment I’m particularly confident in is dividend stocks. Historically, they tend to outperform companies that bypass dividends. The Schwab US Dividend Stock ETF (SCHD) does an impressive job of keeping tabs on these top performers, which is why I’ve continued to invest in it. This year, I’m aiming to increase my ETF purchases.
Focused on the Best of the Best
The Schwab US Dividend Stock ETF follows a simple investment strategy designed to align with the Dow Jones US Dividend 100 Index. This index screens for companies that offer higher yields and maintain solid dividend payment histories, while also having strong financial indicators when compared to peers. It includes metrics like dividend yield and five-year dividend growth rate, resulting in a list of the 100 highest-quality, high-dividend stocks.
This index is also refreshed annually to swap out lower-quality dividend stocks for those with stronger metrics, making sure it continues to track only the best 100 dividend stocks. Recently, 22 stocks were removed, while 25 new stocks were added. Post-revision, the index still maintains an average yield of 3.4%, significantly higher than the S&P 500‘s yield of 1.1%. Additionally, dividends have risen between 8.6% and 9.4% annually over the last five years.
The attention given to both yield and dividend growth is impressive. In the long run, dividend growth stocks are known to offer the best returns because of their strategic policies.
|
Dividend Status |
Average Annual Total Return |
|---|---|
|
Dividend Growers and Maintainers |
10.2% |
|
Dividend Payers |
9.2% |
|
Equal Weight S&P 500 Index |
7.7% |
|
No Change to Dividend Policy |
6.9% |
|
Dividend Cutters and Eliminators |
-1% |
|
Non-Dividend Payers |
4.2% |
The Schwab US Dividend Stock ETF, focusing on the most promising high-dividend growth stocks, has yielded a solid total return. Since its launch in 2011, it’s realized an annualized total return of 13.3%.
Further Diversifying Dividend Investments
The impressive returns from dividend growth stocks motivate a portion of my portfolio. But, of course, I don’t possess every single option out there. This is why I appreciate owning the Schwab U.S. Dividend Stock ETF, which complements my existing dividend stock investments. It broadens my portfolio nicely.
For instance, I only have a stake in four of the ten largest stocks. So, I feel like I’m missing out on some potential high-dividend gains. Interestingly, four of the top ten holdings in the ETF are healthcare stocks, and I’m not currently invested in that sector at all. One notable holding is UnitedHealth Group (UNH), which has been paying dividends since 1990 and has increased its payout for 16 consecutive years, with a recent 5% boost. Its current yield stands at 2.2%. By buying SCHD, I’m adding exposure to quality dividend stocks like UnitedHealth.
I Will Continue to Buy This Excellent ETF
This year, I’ve been purchasing shares in the Schwab U.S. Dividend Stock ETF nearly every month. It offers above-average income, solid returns, and enhances my diversification strategies. Therefore, I plan to boost my positions in it this year as well.
