The Attractive Case for SCHD: A Dividend ETF Worth Considering
With over $63.7 billion in assets under management, the Schwab U.S. Dividend Equity ETF (SCHD) is a behemoth in the dividend ETF space. Its recent 3-for-1 split has generated buzz, but what’s truly exciting is the fund’s underlying strengths. In this article, we’ll explore why SCHD is an attractive addition to any investment portfolio.
A Diversified Portfolio of High-Quality Dividend Stocks
SCHD’s strategy is built around the Dow Jones U.S. Dividend 100 Index, which focuses on the quality and sustainability of dividends. The fund invests in stocks selected for their fundamental strength relative to their peers, based on financial ratios. This approach has resulted in a diversified portfolio of 100 stocks, with the top 10 holdings accounting for 41% of its assets.
A Closer Look at SCHD’s Top Holdings
SCHD’s top holdings are a who’s who of well-known dividend stocks, including Home Depot, BlackRock, and Lockheed Martin. These companies have strong Smart Scores, a quantitative stock scoring system created by TipRanks. Impressively, eight of SCHD’s top 10 holdings have Smart Scores of eight or better. This suggests that the fund’s holdings are not only attractive dividend stocks but also fundamentally sound companies.
Valuation and Volatility
SCHD’s holdings currently have a price-to-earnings ratio of 17.6x, which is relatively inexpensive compared to the broader market. The fund also carries a beta of 0.74, indicating that its share price is less volatile than the broader market. This makes SCHD an attractive option for investors seeking to reduce volatility in their portfolios.
Returns and Performance
SCHD has generated solid returns for its shareholders over the years, with a three-year annualized return of 8.2%, a five-year annualized return of 13.0%, and a 10-year annualized return of 11.7%. While the fund has lagged behind broad market funds like the Vanguard S&P 500 ETF (VOO), it’s essential to consider the dominant performance of large-cap tech stocks in recent years. Should investors rotate away from growth and back toward value-oriented dividend stocks, SCHD could outperform.
Dividend Yield and Consistency
SCHD currently yields 3.4%, which is an attractive yield and more than double the current yield of the S&P 500. The fund has a track record of dividend consistency, having paid a dividend for 12 straight years and increasing its payout annually. This makes SCHD an attractive option for income-focused investors.
Low Expense Ratio
SCHD charges a bargain-bin expense ratio of just 0.06%. This means that an investor with $10,000 in the fund will pay just $6 in fees over the course of a year. The savings from a low-fee investment fund like SCHD can really add up over time.
Wall Street Sentiment
SCHD earns a Moderate Buy consensus rating based on 54 Buys, 37 Holds, and 10 Sell ratings assigned in the past three months. The average SCHD stock price target of $30.16 implies about 5% upside potential from current levels.
Conclusion
SCHD is an attractive dividend ETF that offers a diversified portfolio of high-quality dividend stocks, a relatively inexpensive valuation, and a low expense ratio. While the fund has lagged behind the broader market in recent years, it’s essential to consider the dominant performance of large-cap tech stocks. Income-focused investors and those seeking to reduce volatility in their portfolios may find SCHD an attractive addition to their investment portfolios.
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