💰 Dividend Investing with the Schwab U.S. Dividend Equity ETF (SCHD)
📚 Table of Contents
What is Dividend Investing?
Dividend investing is a strategy focused on buying stocks of companies that regularly pay out a portion of their profits to shareholders in the form of dividends. The goal is to generate a steady stream of income while also benefiting from potential capital appreciation.
Introducing the Schwab U.S. Dividend Equity ETF (SCHD)
The Schwab U.S. Dividend Equity ETF (SCHD) is an exchange-traded fund that tracks the Dow Jones U.S. Dividend 100 Index. This index is composed of high-quality U.S. companies with a history of consistently paying dividends.
Why Invest in SCHD?
-
Quality Companies: SCHD invests in well-established, financially sound companies with a track record of paying dividends.
-
Dividend Growth: Many of the holdings in SCHD have a history of increasing their dividends over time, providing investors with a growing income stream.
-
Diversification: SCHD provides exposure to a diversified portfolio of dividend-paying stocks across various sectors and industries.
-
Low Expense Ratio: With an expense ratio of just 0.06%, SCHD is a cost-effective way to gain exposure to dividend stocks.
SCHD Portfolio Composition
As of May 2024, SCHD held 103 stocks across the following sectors:
- Information Technology: 21.2%
- Financials: 20.7%
- Health Care: 15.4%
- Consumer Staples: 12.6%
- Industrials: 11.9%
- Consumer Discretionary: 7.2%
- Energy: 4.7%
- Communication Services: 3.3%
- Materials: 3.0%
Some of the top holdings include:
- Merck & Co., Inc. (MRK)
- PepsiCo, Inc. (PEP)
- Pfizer Inc. (PFE)
- Cisco Systems, Inc. (CSCO)
- Procter & Gamble Company (PG)
SCHD Performance
Over the past 5 years (ending May 2024), SCHD has delivered an annualized total return of 13.5%, outperforming the S&P 500’s return of 12.1% over the same period. The ETF has a 12-month yield of 3.2% and has consistently increased its dividend payout each year.
How to Invest in SCHD
SCHD can be purchased through most online brokers. As with any investment, it’s important to consider your overall portfolio allocation and risk tolerance before investing. Dividend ETFs like SCHD can serve as a core holding for income-oriented investors or as a way to diversify an existing portfolio.
Risks and Considerations
-
Market Risk: Like all stock investments, SCHD is subject to market fluctuations and can lose value during downturns.
-
Sector Concentration Risk: SCHD’s portfolio is heavily weighted towards certain sectors, which could lead to underperformance if those sectors face challenges.
-
Dividend Cuts: While SCHD focuses on companies with a history of paying dividends, there’s no guarantee these companies will maintain or increase their dividends in the future.
Despite these risks, SCHD remains an attractive option for investors seeking exposure to high-quality, dividend-paying U.S. stocks. With its low costs, diversified portfolio, and strong performance record, SCHD is a solid choice for long-term investors looking to generate income and potentially benefit from capital appreciation.
