Here are 7 reasons which will prove to you that SCHD is and will remain the best Dividend ETF of all. So if you are a dividend investor and you’re always looking for the best investment opportunities, after reading this you’ll have all the necessary information to make a good decision.
You all probably know SCHD, the Schwab U.S. Dividend Equity ETF, so I’ll go directly to the 7 reasons, and even if you don’t know this ETF, you’ll get a good overview here. So let’s start.
7. SCHD has the Best Total Returns
The first reason is that, in the long term, SCHD has had superior returns to all other dividend ETFs. Check out this graph that shows the 10 year return of the 10 most important dividend ETFs around:
You can only see 8 years of returns here because some of the 10 ETFs were created more recently than 10 years ago.
The 10 dividend ETFs here are:
- SCHD, the Schwab U.S. Dividend Equity ETF (Div. Yield: 3.46%),
- VYM – the Vanguard High Dividend Yield ETF (Div. Yield: 3.04%),
- VIG – the Vanguard Dividend Appreciation ETF (Div. Yield: 1.88%),
- SDY – the SPDR S&P Dividend ETF (Div. Yield: 2.51%),
- HDV – the iShares Core High Dividend ETF (Div. Yield: 4.03%),
- SPHD – the Invesco S&P 500 High Dividend Low Volatility ETF (Div. Yield: 4.16%),
- NOBL – the ProShares S&P 500 Dividend Aristocrats ETF (Div. Yield: 1.89%),
- DVY – the iShares Select Dividend ETF (Div. Yield: 3.59%),
- DGRO – the iShares Core Dividend Growth ETF (Div. Yield: 2.32%),
- SPYD – the SPDR Portfolio S&P 500 High Dividend ETF (Div. Yield: 4.63%).
Here are the current dividend yield and the long term return of these 10 ETFs:
You can see right away that SCHD has had the greatest return in the long term, with 146%. The only two other ETFs that got close to this value are DGRO – the iShares Core Dividend Growth ETF – and VIG – the Vanguard Dividend Appreciation ETF. Nevertheless, they both have a much lower dividend yield than SCHD with 2.32% and 1.88%.
Remember, these are the main dividend ETFs per returns, assets under management and stability. Sure, you can throw at me a JEPI with a 10% dividend yield, but those others are ETFs which
- Are not going to be able to keep such a high dividend yield for the long term,
- Are not going to give you the same overall return in the long term.
6. SCHD is in a Better Position than S&P500 now
Because of the hype for AI (i.e., Artificial Intelligence), among other reasons, everybody was so optimistic in the market lately and the Technology Sector grew 50% since the beginning of the year:
This of course dragged up the S&P500 with it, which has a strong overweight in Tech with around 28%, and now everybody’s happy because we recovered the losses from last year.
But what about SCHD? Well, tech exposure here is just 12.5%. That’s why it underperformed the S&P500 by a long shot since January:
The S&P500 grew 19.72% and SCHD only 1.38%.
So now some of you might think this is a clear sign that SCHD is a weak choice. But the truth is, when you have a hype like the one we’ve had now for the tech sector and AI, you should focus on investing on something which is not overpriced but still has a wonderful track record. Something like SCHD.
In a market trading at 20X forward earnings, with tech stocks trading at almost 30X, you can buy SCHD’s for less than 14X.
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5. SCHD has a Superior Dividend Growth
SCHD increased its dividends constantly since inception, as you can see in the following TTM dividend chart, and the dividend growth YoY (year over year) was also positive almost every year.
If you are a serious dividend investor, having a constant and secure dividend distribution in your portfolio is one of the most important factors. You surely don’t want to get $1,000 this year and then $500 or even $0 next year. You want to be able to plan what your passive income is going to be. Some of you are probably close to retirement. For those of you, it’s even more important to know that your dividend income is going to be stable and guaranteed over time.
The following chart shows you a comparison of dividend growth between SCHD and VYM, which is by far one of the most established dividend ETFs. You can see that in the last 10 years SCHD increased their dividends by 446% while VYM only 133.8%:
4. SCHD has a Great Portfolio Screening Strategy
SCHD has one of the finest ways to select stocks. This results in better performance, better stability, better dividend yield.
If you compare its sector composition with the one of VYM, SCHD gives more weight to sectors like Healthcare and technology, while scaling down other sectors like financials that instead have a strong weight in VYM.
For this sector composition and choice of stocks we have to thank the way the ETF selects the stocks, or better said, the way the underlying index selects the stocks.
Some indexes just select stocks based on dividend yield and historical growth, some just based on market capitalization, but not SCHD. SCHD tracks the Dow Jones U.S Dividend 100 Index and selects 100 U.S. securities, excluding REITs. All the stocks are first screened using these 3 criteria. They need to have:
- minimum ten consecutive years of dividend payments
- minimum $500 million float-adjusted market capitalization
- Minimum $2M of three-month average daily trading volume
All the stocks that match these requirements are then ranked by dividend yield. This is the reason why mega-cap tech companies like Apple (AAPL) and Microsoft (MSFT) never qualify for this ETF. The final decision of which stocks will be finally selected happens based on 4 factors:
- the average dividend growth over the past five years
- The free cash flow to total debt
- The return on equity
- And the expected forward yield.
Moreover the weight of single positions and sectors is capped to avoid any overweight (see page 39 of the Index Methodology).
As you can see, a strong focus on important financial metrics as well as dividend stability and growth.
3. SCHD has a Superior Current Yield
Let me show you again the current yield of the 10 ETFs I’ve shown you before:
Of course there are other dividend ETFs that have a higher dividend yield, but if you consider this, together with the assets under management, the history of growing dividend and the return, SCHD is unbeatable.
Here are the 5 biggest dividend ETFs in the world per Total Assets under management and they are 5 of the 10 ETFs I’ve mentioned at the beginning:
If you compare the current dividend yield of these 5 ETFs, SCHD is by far the highest. Take for example VYM, which with 3.04% after SCHD has the highest dividend yield in the top 5. The difference with the 3.46% of our ETF might not sound like a lot to you, but it’s substantial.
With a $100,000 portfolio, SCHD investors would get around $3,460 whereas VYM investors only $3,040. The difference, which might not sound like a lot when talking about small sums, is actually around 13.8%. And a 13.8% boost to your annual passive income is not that bad.
When combined with the fact that SCHD grew its dividend at a 7.1% rate over the past twelve months and a 12.3% CAGR over the past three years compared to VYM growing its dividend at a 4.3% rate over the past twelve months and a 4.1% CAGR over the past three years, SCHD is clearly a superior choice.
2. Morningstar loves SCHD
Reason Nr. 2 might sound trivial, but SCHD has 5 stars and is gold rated in Morningstar:
If stars and medal colors don’t make sense to you, let me explain.
The star rating tells you how the ETF performed historically vs. its peers, and 5 stars are reserved to the best of the best.
The gold, silver, bronze, or neutral rating is based on whether Morningstar’s analysts think it will likely keep outperforming in the long-term.
But let’s take a step back. Why is Morningstar’s opinion so important? We shouldn’t judge an ETF because of some online rating, but Morningstar is by far one of the most trusted and reliable investment research firms around.
Do we like SCHD only because Morningstar loves it? No. But it’s a hell of a confirmation. And if you think that getting a 5 stars rating in Morningstar is a piece of cake, consider that all other 9 dividend ETFs that I mentioned in this post have 4 stars, 3 stars, some even 2.
There’s one more good information about this ETF that we receive from Morningstar: the Consensus.
SCHD’s future expected returns are superior to almost any investment strategy or popular ETF. It’s higher than the Nasdaq itself, REITs, dividend champions and aristocrats, even the S&P500 itself. And historical returns of 13% over 10 years confirm that such return potential is actually reasonable.
1. SCHD has a Superior Holdings Distribution
SCHD’s portfolio has 104 total holdings and 40% is invested in its top 10 holdings. This can be seen as a disadvantage, because other ETFs (like VYM) are more diversified with 500 or 600 stocks, but it’s also true that like this SCHD focuses more on overperforming stocks and doesn’t waste much capital in underperforming companies.
I’m going to leave this for you to judge, but I just want you to see that SCHD caps the portfolio weight of its company to around 4% (see page 39 of the Index Methodology) and this is a great way to ensure that your portfolio is not going to be sunk down by some trading jokes like AMC Entertainment or Tupperware.
The distribution within SCHD’s portfolio is great: you get exposure to almost every sector of the economy and to 56% wide moat, which is a term used by Warren Buffett to describe companies with a strong competitive advantage.
Conclusion
If you like SCHD, you absolutely need to take a look at this, which will tell you everything about the ETF, how much money you’ll make with it and also what happened i n the last reconstitution.
Moreover, here you’ll find a comparison analysis between SCHD and VYM which will tell you everything you need to know when you compare SCHD to other dividend ETFs.
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