You don’t have to pick individual stocks to grow your money. ETFs give you exposure to numerous companies, making it easier to generate positive returns without putting all of your eggs in one basket.
When choosing ETFs, you should look at a fund’s expense ratio, portfolio, and long-term returns. If you want diversification and dividends, few funds can compete with the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD).
It offers more diversification than most ETFs and comes with a 30-day SEC yield of 3.97%. To make it even better, SCHD only has a 0.06% expense ratio. Many people in the Dividend Investing subreddit can’t get enough of this fund, and it’s easy to see why. These are some of the reasons people like SCHD.
Key Points
SCHD is a high-yield ETF that offers plenty of diversification for long-term investors.
Its yield, annualized returns, and fund managers are some of the reasons to consider this ETF.
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Portfolio Diversification
SCHD gives investors exposure to approximately 100 dividend stocks. While you can also construct a portfolio of 100 individual stocks, it’s much easier to buy SCHD. Furthermore, even if you manage to pull it off, you will end up spendinghours of your time in your portfolio for a very limited alpha compared to SCHD.
SCHD isn’t a tech-heavy portfolio, and that may make investors happy who are tired of the Magnificent Seven stocks making up significant portions of the S&P 500 and Nasdaq Composite. Only 10.4% of the fund’s assets are in tech. Consumer defense and energy are the largest sectors, and they make up almost 40% of all assets in the fund.
However, the fund is top-heavy with its top 10 holdings. These stocks make up 41% of SCHD’s total assets.
Long-Term Returns
SCHD has been around since October 20, 2011. One of the fund managers has been on the management team since its inception, and his total investment in the fund is in the $500k-$1 million range. Another SCHD fund manager, Christopher Bliss, has personally invested more than $1 million in the fund.
The fund managers aren’t afraid to put their capital into the fund they manage because SCHD has delivered an annualized 13.7% return over the past five years. The fund has also provided an annualized 10.7% return over the past decade.
It’s important to remember that the fund primarily invests in mature companies that have high yields. Therefore, it isn’t as vulnerable to market corrections and sharp pullbacks. For instance, SCHD lost less than 7% of its value in 2022. During that same year, many growth stocks crashed by 50% or more.
Passive Income
SCHD’s dividend yield is close to 4%. You can use that money as a source of passive income that covers some of your expenses. However, you can also reinvest each distribution back into the fund to increase the next dividend payout.
Most of the companies in SCHD raise their dividends every year. In fact, the fund monitors dividend stocks based on their quality and sustainability. Dividend stocks that turn sour get removed from the fund before they turn ugly. You don’t have to worry about the details, but you can collect regular payouts from SCHD.
SCHD gives out distributions every quarter. You will receive cash flow every March, June, September, and December. The predictable nature of this cash flow makes it easier to plan your expenses and use dividends to cover your bills. However, you shouldn’t rush to use dividends for expenses if you can put them back into the fund.
SCHD has a lot to desire if you are a dividend investor who wants a diversified portfolio. Its low expense ratio, good leadership, and high yield offer a good combination.
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