If there’s one constant in the stock market, it’s the unpredictability and fluctuations. An effective way to mitigate some of this unpredictability is through dividend stocks, which provide dividends regardless of the company’s stock price movements.
While I don’t usually err, I think dividend-focused exchange-traded funds (ETFs) can particularly shine during times when the market is either volatile or stagnant. You don’t have to give up on yield either, as many dividend ETFs are currently offering appealing rates. A prime example is the Schwab US Dividend Stock ETF (NYSEMKT: SCHD).
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This ETF could be one of the best places to invest $1,000 right now. Here’s why:
It’s tempting to be lured into the dividend yield trap, where a stock seems appealing solely because of its high yield. This can also be true for certain dividend ETFs, which may include high-yield firms that perform poorly or have unreliable dividends.
With SCHD, you won’t have to fret too much over this concern. They observe strict criteria for inclusion in their fund, specifically using the Dow Jones US Dividend 100 index. This index targets companies that have a history of at least 10 consecutive years of increasing dividends, sound cash flow relative to debt, high returns on equity, and competitive yields.
This high standard keeps subpar companies out and, as a result, SCHD tends to tilt toward value and defensive sectors. The leading sectors include Energy (19.88%), consumer essentials (18.5%), healthcare (16.2%), industrials (12.1%), and finance (9.68%). Notable companies within this ETF are Lockheed Martin, Chevron, Coca-Cola, AbbVie, and Fifth Third Bancorp.
Over the past decade, SCHD has enjoyed an average annual total return of roughly 12.5%. Although past performance is not a guarantee of future results, if you project this over the next decade, the value of a $1,000 investment could more than triple.
The average dividend yield for SCHD over the same 10-year period has been 3.1%. So, even though you might rake in just $31 annually from a $1,000 investment, that figure can increase as your investment compounds over time, especially if you keep adding more.
If SCHD manages an average annual gross return of 10% over 20 years, your investment’s worth will vary depending on ongoing contributions after that initial $1,000.
Sure, at a 3% yield, these contributions would culminate in total annual payments of about $2,264, $5,356, and $10,511.
This, of course, is purely hypothetical. We can’t predict how SCHD will perform, but it consists of high-quality companies that have proven resilient and should perform well over the long haul.
Before you decide to buy shares in the Schwab U.S. Dividend Stock ETF, keep in mind the insights from our team. They’ve pinpointed which stocks they believe are among the best investments right now, and notably, SCHD didn’t make the cut. These other stocks might have greater potential to generate impressive returns in the coming years.
For context, take Netflix, for example. If you had invested $1,000 when recommended back in December 2004, you’d be looking at an impressive $494,747 today. Similarly, had you put in $1,000 in Nvidia when it was suggested in April 2005, you’d now have $1,094,668.
It’s crucial to note that, on average, our Stock Advisor has returned 911% compared to the S&P 500’s 186%—a significant outperformance.
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