Investors looking to add exposure to top exchange traded funds (ETFs) in the market certainly have plenty of options to choose from. These choices range from index-traded funds to ETFs covering various sectors, geographies and currency-hedged options as well. However, some of the strategic funds are certainly worth a look, at least in my book. One top option I’d recommend investors at least look at is the Schwab U.S. Dividend Equity ETF (SCHD), which tracks top-quality dividend-paying stocks across a range of sectors.

This article will explore some of the key reasons why I think such an ETF may be worthwhile in this current market, and why dividend stocks (often overlooked) could provide excellent value at this current point in the market cycle.

Let’s dive in!

Key Points About This Article:

• Dividend stocks often don’t get the love their growth counterparts do, but that could be an opportunity for investors right now.
• Here’s one top ETF investors may want to consider for exposure to some of the highest-quality dividend stocks in the market right now.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

High Yield and Strong Dividend Growth

Getting paid to simply hold onto a given investment is something most investors should be after. Aside from real estate investment trusts (REITs) and other vehicles, generating passive income from an equity portfolio can be difficult. Most index funds pay around 1% in terms of dividend yield which is nice, but that’s nothing to write home about.

SCHD is focused on companies that not only pay dividends, but raise them over time. This provides the sort of passive income stream many investors are likely after, and an income stream that may keep up with rising costs of living and other factors that investors may not necessarily think about when they’re young.

With an impressive history of paying and increasing dividends, this ETF’s current yield of 3.5% could look a lot more attractive, particularly if interest rates come down. Long bond yields are hovering around 100 basis points higher than this yield currently. However, if you’re an investor who thinks the Fed is likely to cut rates (and do so substantially) in the coming quarters, dividend stocks could become a lot more attractive. Thus, I think there’s some relative value here from a yield perspective, but also some capital appreciation upside if such a scenario plays out how I think it will.

Quality Stock Selection Is Perfect for Defensive Positioning

The second reason this ETF is worth a look is that SCHD is insanely focused on quality. This ETF doesn’t just pick any company to hold it its portfolio. Rather, only the best companies (including those with strong balance sheet and cash positions) are included in this fund. This reduces the ETF’s overall risk profile, and allows investors to sleep well at night, which is a key reason why I own this particular ETF. 

I do think that quality metrics matter, and everything I’ve seen on this fund is that it ranks well in terms of its defensive approach in stock selection. No one can predict the future, and we’re likely to see some serious volatility ahead, particularly coming out of this election. But for those looking to hunker down in more defensive stocks, this is certainly an ETF I think can do better than more broadly-diversified funds which include a greater proportion of lower-quality stocks.

Again, it’s important to talk to a financial advisor about picking any particular stock or ETF. But this is one I think is worth at least doing some homework on, particularly if you’re an investor looking to tilt your portfolio in a more defensive direction.

Total Package

Finally, I think it’s important to emphasize that SCHD isn’t a one-trick pony. This is an ETF that I’d argue is catered to most investor types (though those who want to take a more aggressive approach and have a heavier weighting to growth stocks may not fall into this bucket). The high dividend yield SCHD provides in addition to its capital appreciation upside (in a declining interest rate environment) makes this an ETF with better risk-adjusted total return upside. That’s the total package, at least in my books.

When I think about which ETFs are likely to stand the test of time, a fund like SCHD that focuses on quality dividend-paying stocks is one that certainly makes the list. Of course, everyone’s personal situation and investing goals are different. But risk management and capital preservation are personally very important to me. Accordingly, this is an ETF I intend on adding to over time, and I added to this one last month as evidence of this view.

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