The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) has become the default answer for dividend investors. More than $110 billion now sits in the fund, and the combination of dividend growth, quality screens, and 0.06% expense ratio makes its popularity easy to understand. But SCHD is not the only way to build a portfolio around American dividend stocks.
The WisdomTree U.S. High Dividend Fund (NYSEARCA:DHS) takes a noticeably different approach, pays its distributions every month, and owns several high-yielding stocks that SCHD’s methodology can leave behind. The surprising part is how little money has noticed. DHS holds only about $1.6 billion in assets despite launching all the way back in 2006.
A Different Way to Build a Dividend Portfolio
SCHD’s biggest strength is also one of its limitations. The fund tracks the Dow Jones U.S. Dividend 100 Index, which starts by requiring companies to have paid dividends for at least 10 consecutive years. Eligible companies must also meet size and liquidity requirements and rank in the top half of the remaining universe by indicated dividend yield. The final selection incorporates cash flow to debt, return on equity, dividend yield, and five-year dividend growth.
It is a demanding screen, and the results have been impressive. That said, SCHD is not simply buying America’s highest-yielding companies. A stock can offer an attractive dividend today and still never get added to the portfolio because it lacks the required payment history or fails elsewhere in the methodology.
DHS starts from a different premise. The WisdomTree U.S. High Dividend Fund is specifically designed to target high-dividend-yielding companies in the U.S. equity market. Instead of trying to recreate SCHD’s combination of yield, dividend growth and fundamental quality, DHS puts greater emphasis on generating current income. That gives investors another way to approach the same basic goal.
The difference is important because dividend investors are not all looking for the same thing. Someone with 25 years until retirement may happily accept a lower yield today in exchange for stronger dividend growth. And someone already living on their portfolio income may put more value on how much cash the portfolio generates right now.
The Monthly Income Is the Real Selling Point
SCHD currently carries a 3.27% 30-day SEC yield and a 2.98% trailing distribution yield. DHS’s corresponding figures are 3.29% and 3.12%. The gap is hardly enough to declare either fund the clear winner based on yield alone.
DHS has one clear income advantage: frequency. SCHD distributes income quarterly, whereas DHS pays monthly. That does not magically create additional return, but it can make the fund more convenient for retirees or anyone using dividends to cover recurring expenses. Instead of waiting for four larger distributions each year, investors in DHS receive 12 smaller payments.
That makes DHS less of a dividend-growth vehicle and more of a straightforward income competitor. SCHD asks investors to balance today’s yield against quality and future dividend growth. DHS leans harder toward the income side of that equation.
The Trade-Off Is Long-Term Performance and Cost
DHS makes a better case against SCHD than its $1.6 billion asset base might suggest, but SCHD does not have $111 billion in AUM by accident.
Cost is the first problem. DHS charges 0.38% annually compared with just 0.06% for SCHD. On a $100,000 portfolio, that works out to roughly $380 per year for DHS versus $60 for SCHD. DHS therefore needs its portfolio construction or income characteristics to generate enough value to overcome an additional $320 in annual expenses for every $100,000 invested.
SCHD also wins decisively on scale and trading activity. Schwab reported more than $111 billion in SCHD assets as of August 19. WisdomTree reported approximately $1.62 billion for DHS as of August 21. Put differently, SCHD is nearly 70 times larger than the WisdomTree funds. And DHS has existed for two decades and still receives only a fraction of the attention.
That size difference says plenty about which strategy investors have preferred. SCHD’s combination of low fees, quality screens and dividend growth has been extremely difficult for competing dividend ETFs to displace.
DHS Is an Alternative, Not Necessarily an Upgrade
That does not mean DHS loses the comparison outright, but it does mean investors need to decide what they are actually asking a dividend ETF to accomplish.
SCHD is difficult to beat for an investor who wants a low-cost portfolio of profitable companies with established dividend histories and the potential to grow those payments over time. Its low expense ratio is almost impossible for DHS to compete with, and its methodology has helped turn it into one of the largest dividend ETFs in the market.
DHS makes more sense when current income moves higher on the priority list. It pays monthly, specifically targets high-dividend U.S. companies, and uses a different construction process that can give investors exposure beyond SCHD’s tightly screened universe. That makes DHS more than a smaller SCHD clone.
For investors who prioritize low costs and long-term dividend growth, SCHD still has the stronger argument. For those who want a portfolio built more directly around current income and prefer getting paid every month, DHS deserves a seat at the table.
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