Income investors value the reliability and stability of Schwab US dividend equity ETFs.
I mean, sure, it’s great when your stocks go up in value. You think, “Wow, I’ve made a profit of x%!” But honestly, there’s something really comforting about knowing that your dividend stocks are going to provide guaranteed income. That certainty can be a real relief, especially considering how unpredictable the stock market often is. Prices can shift without a clear reason, and it can really throw you off.
Dividend stocks help by ensuring that you receive payments, either quarterly or monthly, regardless of any price fluctuations. It kind of takes away some of the anxiety that comes with investing in stocks. Furthermore, consider dividend-focused exchange-traded funds (ETFs) as they typically deliver yields similar to individual stocks while offering less volatility. If you have $100 to invest, take a look at the Schwab US Dividend Equity ETF (Schd 0.23%). Let’s dive into why that could be a smart move.
SCHD takes a careful approach to company selection
Some dividend ETFs pick companies just based on their yields. Now, that’s not necessarily bad, but it could mean that the fund includes companies with dividends that aren’t sustainable or with shaky foundations. In contrast, SCHD has stricter criteria for selecting its holdings.
To qualify for inclusion in SCHD, a company must have a solid balance sheet, consistent cash flow, a history of paying annual dividends, and at least a decade of dividend payments. Because of this selection process, SCHD leans more toward companies in value-centric sectors. Here are the key sectors represented:
- Energy: 19.23%
- Consumer Staples: 18.81%
- Healthcare: 15.53%
- Industrials: 12.50%
- Information Technology: 9%
- Financials: 8.91%
- Consumer Discretionary: 8.38%
- Communication Services: 4.52%
- Materials: 3.07%
- Utilities: 0.04%
Firms in sectors such as energy, consumer staples, healthcare, and industrials usually generate steady cash flows—the kind of reliability you want in dividend stocks.
Consistent dividend payments across a variety of ETFs
Payments from SCHD can vary because different companies have different schedules for distributing dividends. Still, SCHD generally offers a dividend yield that’s impressive—at least double the typical S&P 500 average.
Currently, it boasts a yield of about 3.8%, which means a $100 investment could yield around $3.80 annually. While that may not seem like a life-altering amount, it’s a start, and things can improve as you reinvest those dividends to acquire more shares, leading to higher future payments. Sometimes, a steady approach can lead to wonderful results in the stock market.
Over the past ten years, SCHD has boosted its quarterly dividends by more than 160%. That’s something investors might appreciate. Plus, with an expense ratio of just 0.06%, one of the lowest in its category, you retain more of your profits and payments.
SCHD may lag behind S&P 500 in performance, but it’s solid for income
When looking at the last decade, SCHD has trailed the S&P 500, achieving an average annual total return of 11.2% compared to the index’s 13.6%.
At face value, this might push some investors to bypass SCHD in favor of an S&P 500 ETF, but that perspective misses the broader picture. For those prioritizing income, SCHD remains a compelling option, primarily due to its consistent and growing payments, alongside its ability to generate value without heavily depending on stock price criteria.
Generally, the S&P 500 outperforms SCHD during bullish market conditions. Yet, SCHD often performs better during downturns, all while providing an appealing dividend. So, for those focused on income, SCHD is an ETF that allows for long-term investment comfort.
