It’s important to support this ETF as it explores long-term income potential.
Most individuals who benefit from Social Security prefer to receive monthly payments, but these funds often fall short of what typical retirees actually need. Right now, the average monthly payment is about $1,976, which means retirees often need to tap into their savings to manage their everyday expenses.
The burning question is: how can retirement savings transform into dependable passive income? While bonds with interest are a straightforward choice, many also consider dividend-paying stocks as pivotal for their financial plans.
This is where the Schwab US Dividend Equity ETF (Schd -0.42%))
Here’s a quick overview of this exchange-traded fund:
Overview of Schwab US Dividend Equity ETF
To start, this ETF has a trailing twelve-month dividend yield of under 4%. It’s quite competitive with S&P 500 index funds and other dividend-centric vehicles, offering around $4,000 annually on a $100,000 investment.
Moreover, it tracks some notable indexes, namely the Dow Jones US Dividend 100 Index, which showcases 100 high-quality dividend stocks (excluding REITs) that have met baseline requirements for a decade. These stocks are selected based on an impressive composite score that considers equity returns, dividend yields, five-year dividend growth rates, and free cash flow in relation to total liabilities.
Among its top holdings are Texas Instruments, Chevron, Conoco Phillips, Merck, and PepsiCo. In addition to the solid dividend yield, this ETF can also be seen as a value proposition, given its current price-to-earnings ratio is only 16, far below the S&P 500‘s average of 25.
Although the ETF’s rigorous screening criteria have led to solid yields and growing dividends, its performance has lagged behind the S&P 500 over the last decade.
The gap has widened since early 2024, likely influenced by emerging trends like artificial intelligence, which seems to have impacted ETF valuations negatively.
Should retirees consider SCHD’s holdings?
Interestingly, Schwab’s ETF doesn’t include the high-growth AI stocks that have propelled markets upwards lately.
Given this context, stable dividend payers and value stocks like those in the Schwab ETF are particularly appealing for retirees looking to enhance their Social Security income. Morningstar Analyst David Sekera emphasized in a recent market outlook that value stocks are both undervalued in the current climate and nearing some of the most reasonable levels seen in the last 15 years. He points out that in overvalued markets, the high dividend yields from value stocks are particularly attractive.
What’s more, the ETF has consistently increased its payments over time, as demonstrated below.
In summary, while the Schwab US Dividend Equity ETF may be underperforming the S&P 500 currently, it offers reliable income, along with lower volatility than the broader market. These are characteristics that should resonate particularly well with retirees aiming to increase their income.
