Investing

Schwab U.S Dividend Equity ETF (SCHD) Is One of Our All Time Favorites

Chris MacDonald

Published: October 25, 2024 11:04 am

Investing in dividend stocks offers passive income but requires plenty of homework (and likely costly mistakes) to pick the right income-generating stocks that can perform at least as well as the market. One better option for many investors is the Schwab U.S. Dividend Equity ETF (NYSEMKT:SCHD). This is among the most prominent dividend-focused ETFs in the market, holding the 100 best-performing dividend stocks for investors to simply buy into en masse.

This diversification comes at a rock-bottom management expense ratio of just 6 basis points (0.06%), which is startlingly low compared to many other dividend-focused funds which can charge between 0.3% and 0.6%, depending on the fund and the manager involved. Of course, lower fees make a big difference in how a given ETF will ultimately perform over the long-run, but there are other reasons why I like this ETF in particular. 

Let’s dive into why the SCHD is among the top ETFs for dividend investors, and why this is a fund I currently hold and am likely to continue adding to in the coming years. 

Key Points About This Article:

• The Schwab U.S. Dividend Equity ETF (SCHD) is among the top income-focused ETFs in the market, and for good reason.
• Aside from rock-bottom fees, there are a number of reasons why I think this ETF is worth owning right now. 
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What Is the Schwab U.S. Dividend Equity ETF?

The Schwab U.S. Dividend Equity ETF holds around 100 dividend stocks, and like many top ETFs, this fund is relatively highly concentrated with its top holdings. In fact, the fund’s top 10 holdings make up around 40% of its assets, with the likes of Home Depot, Verizon, Chevron, Coca-Cola and others playing a prominent role for this particular income-oriented fund. 

Personally, I think this concentration is a relatively good thing, as the quality of the blue-chip stocks this ETF holds is world-class. These are the kinds of companies I can easily see Warren Buffett and other very long-term investors owning. Thus, for investors looking for dividend stability, there’s a lot to like about how this fund is structured. 

I’m of the view that diversification really can lead to de-worsification of a portfolio, if done incorrectly. However, the quality of the highly-weighted components of this ETF are all very investment-worthy prospects I’d probably add to a portfolio on their own. 

A Recent Stock Split With Noting

What’s interesting about owning ETFs is that these funds can experience stock splits (just like high-growth tech stocks) from time to time. Interestingly, the SCHD ETF recently undertook a 3-for-1 split. Schwab Asset Management executed 20 such stock splits for other ETFs, this one included, partly due to surging investor interest in these funds and rising share prices over time.

This stock split went into effect on October 11, and simply adjusted the share price of this fund lower. The company’s pre-split price was around $85 per share which dropped below the $29 level, allowing retail investors to scoop up more whole shares of this ETF at once. Personally, I own this ETF in a retirement account, and have signed on for a DRIP, so I love the fact that I can own partial shares of this company and watch the cost basis stay around the same, even as I’m adding more capital over time.

This stock split is meaningful for many investors looking to rebalance their portfolios, and I actually recently just did that myself in part due to this split. 

Why the SCHD ETF Is a Buy

The Schwab U.S. Dividend Equity ETF is a fund that’s focused on some of the best-quality dividend-paying companies in the world. This isn’t your average dividend fund. The quality of the companies held here are really top-notch, and this certainly feels more like a quality or actively managed ETF than a passive option with a 0.06% MER.

For investors seeking exposure to world-class dividend stocks that have raised their distributions annually for more than 10 years, have strong cash flow to debt and return on equity metrics, and reasonable yields to boot, this is the ETF to go for. 

In my view, it’s hard to come by any better income-generating fund than this one. That’s why this is the specific ETF I focus on; it’s not only the dividend income and solid growth trajectory this fund has offered, but the quality aspect as well. There’s a lot to like about owning a vehicle like this for a very long time.