When it comes to investing during retirement, your goals and tenure will be different from when you started as an investor. Your paychecks have stopped, and you’re now depending on your retirement savings to pay for the expenses. Retirees are also very cautious about where they invest their funds, and if you’re on the lookout for passive income options, you’re not alone. You can invest in dividend stocks and enjoy passive income each quarter, but there are other low-risk options that can make a significant difference to your portfolio.
An exchange-traded fund (ETF) can be an ideal choice for retirees looking to enjoy passive income. It is a low-cost option that invests in a basket of stocks and offers steady income. There are hundreds of ETFs to choose from, but retirees absolutely love one Schwab Fund for its high yield and a 12% dividend hike. Let’s dive deep into the fund.
An ETF for the long term
The Schwab US Dividend Equity ETF (NYSEARCA:SCHD) is an exchange-traded fund managed by the professionals at the Schwab Asset Management team. It invests in a basket of individual stocks and tracks the Dow Jones U.S. Dividend 100 Index. This index tracks the returns of high-yielding dividend stocks that show a consistent record of payments and are fundamentally strong. The fund excludes real estate investment trusts, preferred stocks, and master limited partnerships. No stock has a weightage higher than 5%, and no sector has a weightage higher than 25%.
A dividend rich portfolio
The fund holds 101 stocks, offering optimal diversification. By investing in SCHD, you get to own a piece of 101 different companies across various industries. It invests in companies that have a strong history of paying and raising dividends. These companies have grown their dividends over time and have the ability to keep raising them. SCHD holds blue-chip names that are top quality and offer steady income for years. It is an excellent fund for long-term investors.
Besides offering complete diversification, the fund also has significantly lower exposure to the technology sector. This makes SCHD an ideal choice for retirees, as tech stocks can be volatile in the current market situation. The fund has $85 billion in assets under management and an expense ratio of 0.06%.
Steady income right away
Retirees love buying SCHD because it provides dividend income right away. It has a yield of 3.51%, much beyond what the S&P 500 offers. Since the ETF invests in dividend-paying stocks across diverse industries, the risk is mitigated, and there’s little chance of a drop in the yield. SCHD has grown its dividend by over 500% since 2011, and this is proof that you can build wealth by investing in dividend ETFs. The income will help tackle inflation, and if you reinvest in the dividends, you’ll grow your money faster.
SCHD has the highest allocation in the energy sector at 19.88%, followed by consumer staples (18.50%) and healthcare (16.20%). It allocates only 8.20% to the information technology sector.
The fund’s top 10 holdings include strong dividend payers like
- Chevron Corporation (3.88%),
- Verizon Communications (5.70%),
- Lockheed Martin (2.14%),
- Merck & Co. (2.76%),
- ConocoPhillips (2.97%),
- PepsiCo. (3.88%).
It has generated an average annualized return of 11.34% in a year and 9.07% in 3 years. If you’d invested $10,000 in the fund in 2016, you’d have $32,864 today.
SCHD has gained 11.21% in the past year and is exchanging hands for $31.64 as of writing. The fund is reconstituted quarterly, which will happen in March.
Top Gaining Stocks
Top Losing Stocks