The recent market volatility
Recently, the market has shown increased volatility, particularly evident with several significant downturns this past month. A lot of this uncertainty seems linked to the upcoming Fed meeting and the potential increase in interest rates.
Interestingly, amidst this volatility, dividend growth stocks have historically remained more stable over the long haul. This makes them particularly appealing right now, especially for investors considering the Schwab U.S. Dividend Equity ETF (SCHD), which focuses on high-yield dividend growth stocks. This approach not only suits a variety of investors but also positions them well for future rewards.
A look at historical winners
Research from Hartford Funds alongside Ned Davis Research has analyzed dividend policies of S&P 500 companies over the years. The findings reveal some striking insights. Dividend stocks tend to outperform non-dividend stocks and display lower volatility; in fact, the highest returns combined with the lowest volatility arise from companies that either grow or start paying dividends.
| Dividend status | Average annual total return | Beta | Standard Deviation |
|---|---|---|---|
| Dividend Growers & Initiators | 10.22% | 0.89 | 15.97% |
| Dividend Payers | 9.20% | 0.94 | 16.71% |
| Equal-Weight S&P 500 Index | 7.74% | 1.00 | 17.55% |
| No Change in Dividend Policy | 6.87% | 1.02 | 18.45% |
| Dividend Non-Payers | 4.21% | 1.18 | 21.91% |
| Dividend Cutters & Eliminators | -0.96% | 1.22 | 24.80% |
Data from Hartford Funds and Ned Davis Research covers returns from 1973 to 2025. To clarify a bit, the beta value indicates how much a stock’s price fluctuates in comparison to the market as a whole (with the S&P 500 set at a beta of 1.0). A beta lower than 1.0 suggests a stock is less volatile. Additionally, standard deviation provides insight into how much stock prices normally diverge from their average, where a lower number implies less price variability.
In straightforward terms, the historical data backs up the idea that those who invest in dividend growth stocks typically see better returns with less volatility over the long term.
Investing with a focus on dividends
The Schwab U.S. Dividend Equity ETF has a clear-cut investment strategy. It simply tracks the Dow Jones U.S. Dividend 100 Index, which is centered on companies with sustainable and high-quality dividends. This is determined through a screening process based on four key indicators: cash flow versus total debt, return on equity, dividend yield, and five-year dividend growth rate. In its most recent annual review in March, the ETF’s roughly 100 holdings had achieved an average annual dividend growth of around 9.4% over five years.
This focus means that SCHD is invested in strong, stable dividend growth stocks, as indicated by the research from Hartford and Ned Davis. Such stocks tend to yield robust total returns over time. The historical performance of SCHD corroborates this, boasting an impressive annualized total return of 13.4% since its 2011 launch. While past performance isn’t a guarantee for the future, its strategy of identifying high-quality, yielding dividend growth stocks certainly enhances its chance of delivering solid returns moving forward.
A bright outlook for patient investors
As we look ahead, it’s possible that volatility will persist this year, particularly if the Fed decides to increase rates. That could actually present a good buying opportunity for SCHD. Although it’s not completely shielded from market fluctuations, it should still provide strong returns with comparatively lower volatility over the long haul.
