Here is Why Everyone Should Own Schwab’s SCHD ETF

The current market uncertainty has sparked investor interest in exchange-traded funds and there are plenty to choose from. Since no two funds are equal, you need to choose one based on your goals, risk, and investment horizon. Schwab has several funds that attract investor interest but one fund stands apart for dividend income investors. If you do not want to risk investing in individual stocks but want to enjoy steady passive income, consider Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD). 

Key points in this article:

• The ongoing market uncertainty has drawn investors towards low-risk ETFs.
• The Schwab U.S. Dividend equity ETF has shown steady dividend growth for 12 years.
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How does SCHD work?

The Schwab U.S. Dividend ETF tracks the Dow Jones U.S. Dividend 100 Index and invests in a bucket of stocks that have record annual dividend increases. The Net Asset Value of the ETF is $27.58 and enjoys a dividend yield of 3.49%. It is up 3.26% in the year and over 80% in the past five years. The fund has shown a consistent dividend growth of 12 years and has a record of double-digit annualized returns. While past performance is no guarantee for future returns, this fund has managed to prove its strength time and again. 

The fund has a low expense ratio of 0.060%. By choosing to invest in only those companies that have a record of 10 or more annual dividend increases, the fund sets the bar very high. It does not include Real Estate Investment Trusts (REITs) in its holdings. The fund holding is updated annually, thus, making it easier to remove companies that do not make it to the elite list. This ensures that the fund is always doing well. In a rare move, the EFT went for a three-for-one stock split last year.

Low-risk, low-cost and steady returns

SCHD (1.17%) has done better than the Nasdaq 100 (-10.15%) and S&P 500 (-4.90%) this year due to its limited exposure to the technology sector. There is a general fear that the AI bubble has burst and this caused tech stocks to drop. SCHD wasn’t much affected by the dip because it invests a small percentage in the tech sector. The fund was recently rebalanced and it removed some of the elite companies like BlackRock and Pfizer. It has also shifted the sectors focusing more on the energy sector this year. 

Its portfolio reflects:

• Energy: 21%
• Consumer staples: 18.7%
• Healthcare: 16.1%
• Industrials: 12.5%
• Technology: 7.9%

The ETF holds 97 stocks and has some of the biggest companies that have survived several market ups and downs. Its largest investment lies in ConocoPhillips, Merck & Co., Schlumberger NV, Target Corporation, and General Mills Inc. These are dividend aristocrats who believe in rewarding shareholders. 

SCHD is very affordable in terms of the expense ratio and has rewarded investors steadily over the years. The fund offers diversification which is a major consideration in current times. With limited allocation to technology stocks, SCHD remains shielded from the market ups and downs to a certain extent. About half of the fund’s portfolio lies in consumer staples and healthcare which are two indomitable industries in the economy. Its top holdings of dividend paying companies ensure a diversified mix and reliable dividends for the years to come. 

SCHD offers elite stocks for your portfolio

The reason why you should own SCHD ETF is to achieve ultimate portfolio diversification. The ETF is attractive because it invests in financially strong businesses with historically high yields. It picks the companies that not only have a high yield but also dividend growth.

With a yield of 3.5%, higher than the 1.2% offered by the S&P 500 index, SCHD ETF can help build a financially strong portfolio. Buying each of these stocks could cost you more but investing in a low-cost ETF can help build a portfolio that pays regularly. With a single investment, you get to own the biggest companies and enjoy passive income which is why it should be a core holding. 

In the long term, SCHD’s performance will continue as it has done in the past.

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